The following information relates to Check Ltd and Fourty40 Ltd as at 30 June 2021:
1. Check Ltd is a grocery food chain, operating stores across South Africa. Fourty40 Ltd developed an application to allow for online grocery purchases and a same day delivery service. At the start of lockdown, Check Ltd acquired a 70% interest in the ordinary shares and a 40% interest in the 9% cumulative preference shares of Fourty40 Ltd on 1 April 2019. Preference shares are classified as equity.
At acquisition date, Fourty40 Ltd had been in operation for only a few months. Fourty40 Ltd’s retained earnings amounted to R430 000, revaluation surplus was R45 000, ordinary share capital amounted to R550 000, and preference share capital to R240 000 on that date.
The carrying amounts of the assets and liabilities of Fourty40 Ltd were deemed equal to the fair values thereof at acquisition, except for land. Land was valued from R1 100 000 to R1 750 000. Due to all the administrative work surrounding the acquisition, Fourty40 Ltd omitted to adjust their financial records.
During June 2021, Fourty40 Ltd revalued its land again and its total revaluation surplus amounted to R750 000 after this was recorded.
The issued share capital of both companies remained unchanged since acquisition. Assume each ordinary share carries one vote and that voting rights alone determine control.
Furthermore, it is also group policy to disclose goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired in the current year.
