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AFRICAN DAWN 2015 Annual Report

Accounting Policies continued 1.20 Significant judgements and sources of estimation uncertainty (continued) AFRICAN DAWN 60 ANNUAL REPORT 2015 First NAV liability In terms of IFRS 3, the fair value of the contingent consideration should be added to the purchase price at the date of the acquisition. At acquisition, the fair value of the first NAV liability could not be determined because it was based on the NAV per share on the 28 February 2014. It therefore became apparent that the NAV was less than 10 cents per share and an amount of R1 460 000 was owed to the sellers to be paid on or before 1 March 2015. This amount was interest-free. (Refer to note 20 and 37). In November 2014, the term was renegotiated. It was agreed that this amount would remain interest-free and would be payable to the sellers over twenty four months with effect from November 2014. (Refer to notes 20 and 37). Second NAV liability Subsequent to 28 February 2015, a material prior period error relating to the 2014 and 2013 impairment of debtors in Elite was discovered. This resulted in a restatement of the 2014 and 2013 financial statements (refer to notes 42 and 43) and the impact thereof was that the NAV was restated. This decrease in NAV per share meant that the Knife Capital vendors were entitled to a further payment of R2,095,000, to be settled on the same terms as the first NAV liability. R2,095,000 was added to the purchase price. (Refer to notes 20 and 37). Share issue liability At the time of the Knife Capital acquisition it was expected that Afdawn Group would raise capital of R50 million and therefore the fair value of the share issue liability at the date of acquisition was nil. The fair value was unchanged at the interim reporting date (31 August 2014). However, at 28 February 2015, it became clear that this capital would not be raised and therefore the fair value of the contingent consideration changed. In terms of IFRS 3, any adjustment to the at-acquisition fair value of the contingent consideration affects profit or loss if it results from an event after the acquisition date and after the finalisation of the measurement period relating to the acquisition. The measurement period relating to the Knife Capital acquisition was finalised by the 31 August 2014. This adjustment meets the definition of a financial liability in terms of IAS 32 – Financial Instruments: Presentation, because it is an obligation to issue shares to the value of a specified Rand amount (with a maximum of R2 million). A financial liability of R2 million was recognised and will be settled by the issue of a variable number of shares in the short term. Refer to note 37. Knife Capital Group acquisition - additional remuneration The agreement relating to the acquisition of Knife Capital Group outlines various future incentives that the sellers would be entitled to. It was agreed that these amounts would be finalised by the effective date of the acquisition of Knife Capital Group. At the year end, these incentives had not been finalised and therefore the amount of the liability cannot be measured with sufficient reliability. This has been disclosed as a contingent liability. (Refer to note 39). Subsequent to year end, and as announced on SENS on the 1st July 2015, the vendors of Knife Capital released Afdawn Group from the second NAV liability, the share issues liability and the contingent liability relating to the additional remuneration. (Refer to notes 20, 37 and 45). Knife Capital Group acquisition – revision to terms (non-adjusting event refer note 45) As announced on SENS on 1 July 2015 as part of the Voluntary Business Update, the vendors of Knife Capital and Afdawn have entered into an agreement in terms of which the vendors have agreed to release Afdawn from the obligation to pay the second NAV liability of R2,095,000 and the share issue liability of R2,000,000 (refer to notes 20, 37 and 45). In addition, they have agreed to release Afdawn Group from any obligation to pay an amount relating to long-term incentives (Refer to note 45).


AFRICAN DAWN 2015 Annual Report
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