Mamagau Limited acquired 50% of the voting shares of Mashego Limited at 30 April 2015 at R160 000. The balance sheet of Mashego Limited showed the following balances at 30 April 2015:
Non-current assets R450 000
Current assets R120 000
Non-current liabilities R240 000
Current liabilities R25 000
The year-end date for Mamagau Limited is on 30 April of every year. During the year ended 30 April 2016 Mashego Limited reported an after tax profit of R120 000. The directors of Mashego Limited declared an ordinary dividend of R20 000 but not yet paid at reporting date. Mamagau Limited applies equity accounting method for its associates and joint ventures.
What is the portion of Mamagau Limited in the equity of Mashego Limited as at the acquisition date on 30 April 2015?
Select one:
a. R305 000
b. R160 000
c. R152 500
d. R470 000
The portion of Mamagau Limited in the equity of Mashego Limited as at the acquisition date on 30 April 2015 can be calculated as follows:
Net Assets = Non-current assets - Non-current liabilities + Current assets - Current liabilities
Net Assets = R450 000 - R240 000 + R120 000 - R25 000
Net Assets = R305 000
Since Mamagau Limited acquired 50% of the voting shares of Mashego Limited, its portion in the equity would be 50% of the Net Assets.
Portion of Mamagau Limited = 50% x Net Assets
Portion of Mamagau Limited = 50% x R305 000
Portion of Mamagau Limited = R152 500
Therefore, the portion of Mamagau Limited in the equity of Mashego Limited as at the acquisition date on 30 April 2015 is R152 500.
The correct answer is c. R152 500.