Reference no: EM132730481

Question - Nike Ltd is a company that prints and publishes educational books. To expand their business, they acquired shares in Adidas Ltd, which mainly print and bind books. On 1 October 2016 Nike Ltd acquired 70% of the 400 000 ordinary shares and 10% of the 20 000 preference shares in Adidas Ltd. The current year-end for both companies is 30 September 2019.

Additional information:

1. On the date of acquisition, the carrying amount of Adidas Ltd's assets and liabilities were deemed to be equal to the fair value thereof. Preference dividends were not in arrears at the date of acquisition.

The share capital of both companies remained unchanged since incorporation.

The group discloses goodwill at cost less impairment in the consolidated financial statements. Goodwill was not impaired during the current year.

Assume each ordinary share carries one vote and that the voting rights alone determine control. The preference share capital is classified as equity.

2. On 30 April 2018 Nike Ltd sold a printing machine to Adidas Ltd for R550 000. On the date of sale the printing machine had a carrying value of R500 000. It is the group's policy to depreciate machinery at 20% per annum according to the straight-line method.

3. Since the acquisition date, Nike Ltd purchased all its inventory from Adidas Ltd at cost plus 25%. Nike Ltd's inventory disclosed in the financial statements at 30 September 2019 amounted to R350 000. On 30 September 2018 it amounted to R200 000. Adidas Ltd's inventory disclosed in the financial statements at 30 September 2019 amounted to R240 000. On 30 September 2018 it amounted to R210 000.

4. Nike Ltd provides management services to Adidas Ltd at R120 000 per year. At year-end Adidas Ltd has paid the management fees for the current year.

5. Neither the accountant of Nike Ltd nor Adidas Ltd provided for the preference dividends of R2 000 declared by Adidas Ltd, for the year ended 30 September 2019. The preference dividend of R2 000 has not been paid yet.

6. You can assume that the profit after tax amounted to R800 000 for Adidas Ltd for the year ended 30 September 2019.

Required - Draft the following pro-forma consolidation journal entries of the Nike Ltd Group for the year ended 30 September 2019, after taking the above-mentioned information into account:

(a) Elimination of the unrealised profit and the deprecation associated with the sale of the machine.

(b) Elimination of the unrealised profit included in opening and closing inventory.

(c) Elimination of the intragroup management fees for the current financial year.

(d) Provision of dividend payable to non-controlling interests.

(e) Recording of the non-controlling interests in the profit of the subsidiary, for the current financial year, relating to ordinary and preference shareholding.