Reference no: EM13491578

Amounts in the question exclude VAT, except where indicated. WorldCup (Pty) Ltd ('WorldCup') was incorporated on 1 January 2000. WorldCup manufactures and sells high-quality sports equipment. The company's annual financial reporting period ends on 31 December.
Information about group companies

Protea (Pty) Ltd

WorldCup invested in Protea (Pty) Ltd ('Protea') on 1 January 2008 by acquiring an 80% controlling interest in its share capital for R11 600 000. On 1 January 2008, Protea's equity consisted of the following:

R
Share capital
100 000
Share premium
400 000
Retained earnings
14 500 000
Protea has not issued any additional shares since that date. Protea specialises in the hosting of major international cricket tournaments in South Africa. Protea acquired land during the 2003 financial reporting period at a total cost of R7 million. Following the major success of the International Cricket Council Twenty20 World Championship® held in South Africa in 2007, Protea required funding for purposes of expansion and therefore entered into a sale-and-leaseback agreement for the land with WorldCup. In terms of the agreement, WorldCup settled its obligation under the sale agreement in cash. Protea correctly classified the leasing element of the sale-and-leaseback agreement in terms of IAS 17, Leases, as an operating lease. The following information relates to the sale-and-leaseback transaction:
Selling price
R10 million
Date of disposal and commencement of lease agreement
1 February 2008
Lease instalments
R200 000, payable monthly in arrear
Lease term
60 months
The following information relates to the land that is the subject of the sale-and-leaseback transaction:
1 January 2008
1 February 2008
R
R
Fair value of land
9 000 000
9 000 000
Base cost to Protea of land for capital gains tax purposes
7 000 000
7 000 000
Carrying amount of land in Protea's records
7 000 000
7 000 000
2
Bafana (Pty) Ltd
On 1 January 2008 WorldCup invested in Bafana (Pty) Ltd ('Bafana') when WorldCup acquired a 90% controlling interest in its share capital for R12 800 000. On 1 January 2008, the equity of Bafana consisted of the following:
R
Share capital
200 000
Share premium
800 000
Retained earnings
11 000 000
Mark-to-market reserve (relating to available-for-sale financial assets)
1 000 000
Bafana has not issued any additional shares since that date. The main operations of Bafana involve the manufacture and assembly of low-cost soccer equipment. During the 2008 financial reporting period, the management of Bafana approached the directors of WorldCup regarding a potential 'management buy-out' of Bafana. After extensive negotiations between relevant parties, a deal was concluded with the management of Bafana. In terms of the agreement, WorldCup sold a portion of its holding in Bafana for R12 million cash on 1 July 2009, resulting in WorldCup retaining a 40% ownership interest in Bafana. WorldCup was able to exert significant influence over the financial and operating policies of Bafana as from 1 July 2009. The fair value of available-for-sale financial assets held by Bafana increased by R1 800 000 (after tax) between 1 January 2009 and 30 June 2009. Bafana's profit for the year accrued as follows for the year ended 31 December 2009:
1/1/2009 to 30/6/2009
1/7/2009 to 31/12/2009
R
R
Revenue
9 000 000
11 000 000
Cost of sales
(4 500 000)
(5 500 000)
Operating costs
(2 772 000)
(2 094 400)
Profit before tax
1 728 000
405 600
Income tax expense
(650 100)
(890 500)
PROFIT FOR THE YEAR
1 077 900
2 515 100
Additional information
Except where noted, the carrying amounts of net identifiable assets of all group companies approximated their fair values at the dates on which WorldCup invested in these companies. The share capital of all companies in the WorldCup group consists of ordinary shares with a par value of R1,00 per share. It is the accounting policy of all companies in the WorldCup group to subsequently measure -
• investment properties according to the cost model in terms of IAS 40, Investment Properties; and
• items of property, plant and equipment according to the cost model in terms of IAS 16, Property, Plant and Equipment.
3
None of the group companies has elected to apply the provisions of section 45 of the Income Tax Act to any intercompany transactions. It is the accounting policy of WorldCup to measure investments in subsidiaries and associates at cost in its separate financial statements in accordance with IAS 27, Consolidated and Separate Financial Statements. WorldCup has elected to measure any non-controlling interests at fair value at acquisition dates. Fair values are determined with reference to acceptable valuation techniques on the relevant dates. WorldCup elected to apply IFRS 3, Business Combinations (revised 2008), with effect from 1 January 2008. The fair values (per share) of shares in group companies were as follows at the respective dates:
Fair value (per share)
Protea
Bafana
1 January 2008
R148,00
R67,00
1 July 2009
R110,00
Separate or individual statements of changes in equity of group companies The following information represents the draft separate statements of changes in equity of companies in the WorldCup group for the year ended 31 December 2009:
WorldCup
Share capital
Share premium
Retained earnings
Mark-to-market reserve
Total equity
R'000
R'000
R'000
R'000
R'000
Balance at 1 January 2009
700
2 300
24 605
1 800
29 405
Changes in equity for 2009
Profit for the year
-
-
16 360
-
16 360
Other comprehensive income
-
-
-
900
900
Dividends paid (31 December 2009)
-
-
(3 500)
-
(3 500)
Balance at 31 December 2009
700
2 300
37 465
2 700
43 165
4
Protea
Share capital
Share premium
Retained earnings
Mark-to-market reserve
Total equity
R'000
R'000
R'000
R'000
R'000
Balance at 1 January 2009
100
400
18 900
800
20 200
Changes in equity for 2009
Profit for the year
-
-
4 742
-
4 742
Other comprehensive income
-
-
-
100
100
Dividends paid (31 December 2009)
-
-
(2 600)
-
(2 600)
Balance at 31 December 2009
100
400
21 042
900
22 442
Bafana
Share capital
Share premium
Retained earnings
Mark-to-market reserve
Total equity
R'000
R'000
R'000
R'000
R'000
Balance at 1 January 2009
200
800
12 800
3 100
16 900
Changes in equity for 2009
Profit for the year
-
-
3 593
-
3 593
Other comprehensive income
-
-
-
1 300
1 300
Dividends paid (31 December 2009)
-
-
(1 500)
-
(1 500)
Balance at 31 December 2009
200
800
14 893
4 400
20 293

REQUIRED

(a) Provide the pro forma consolidation journal entries that should be processed by WorldCup (Pty) Ltd for the year ended 31 December 2009 to correctly account for Protea (Pty) Ltd in its consolidated annual financial statements. Journal entries relating to deferred taxation are also required.

(b) Provide the pro forma consolidation journal entries that should be processed by WorldCup (Pty) Ltd for the year ended 31 December 2009 to correctly account for Bafana (Pty) Ltd in its consolidated annual financial statements. Journal entries relating to deferred taxation are not required.