1. Department of Financial Accounting Investment in Associate

2. Associate Intra-group transactions Look out who is making profit and who has the asset at year-end Example PPE Profit 10 000 Interest = 40 % Tax = 28% 10 000 x 40% = 4 000 Unrealised profit 4 000 x 28% = (1 120) 2 880 Elimination “upstream” Associate sell to investor Associate make profit Consolidation JNL Elimination “down stream” Investor sell to associate Investor make profit Share Profit in Ass (SP/LOCI) PPE (Investor) Deferred tax Other income (SP/LOCI) Investment in Ass Deferred tax ( SFP) Income tax exp NO ASSET TO SET OFF Consolidation JNL 2 880 4 000 1 120 4 000 General misunderstandings of students: 1 120

3. Associate Example: - The associate has profit at year-end after tax of R100 000 - The inventor interests is 40% - PPE sold by ASS end year with a profit of R10 000 (inter company) Tax = 28% Current year Profit Elimination PPE Tax 37 120 Share profit associate and investor Asset (PPE)! At acquisition 100%AtSince 40%CA The associate sold the asset Share Consideration XXX 40 000 - - (4 000) 1 120 40 000 92 800 100 000 (10 000) 2 800

4. The Investor sold the asset Analysis Current year Profit PPE Tax Associate did not make profit Asset = Associate = Investment At acquisition100%AtSince 40%CA 40 000 Share Consideration XXX 37 120 (4 000) 40 000 - 92 800 100 000 (10 000) 2 800 - 1 120

5. THE END