Highland plc owns two subsidiaries acquired as follows:
1 July \(1991 \quad 80 \%\) of Aviemore Ltd for \(£ 5\) million when the book value of the net assets of Aviemore Ltd was \(£ 4\) million.
30 November 1997 65\% of Buchan Ltd for \(£ 2\) million when the book value of the net assets of Buchan Ltd was \(£ 1.35\) million.

The companies' profit and loss accounts for the year ended 31 March 1998 were:

\begin{tabular}{|c|c|c|c|}
\hline & & & \\
\hline & \begin{tabular}{l}
plc \end{tabular} & \(L t d\) & Ltd \\
\hline & \(£^{\prime} 000\) & \(£^{\prime} 000\) & \(£^{\prime} 000\) \\
\hline Sales & 5000 & 3000 & 2910 \\
\hline Cost of sales & \((3000)\) & \(\underline{(2300)}\) & \(\underline{(2820)}\) \\
\hline Gross profit & \(\overline{2000}\) & 700 & 90 \\
\hline Net operating expenses & \((1000)\) & \((500)\) & (150) \\
\hline Other income & 230 & - & - \\
\hline Interest payable and similar charges & - & \((50)\) & (210) \\
\hline Profit/(loss) before taxation & \(\overline{1230}\) & \(\overline{150}\) & \((270)\) \\
\hline Taxation & \((300)\) & \((50)\) & - \\
\hline Profit/(loss) after taxation & 930 & 100 & (270) \\
\hline Dividends proposed & \((200)\) & \((50)\) & - \\
\hline & 730 & 50 & \((270)\) \\
\hline \end{tabular}
\section*{Additional information}
(1) On 1 April 1997, Buchan Ltd issued \(£ 2.1\) million \(10 \%\) loan stock to Highland plc. Interest is payable twice yearly on 1 October and 1 April. Highland plc has accounted for the interest received on 1 October 1997 only.
(2) On 1 July 1997, Aviemore Ltd sold a freehold property to Highland plc for \(£ 800000\) (land element - \(£ 300000\) ). The property originally cost \(£ 900000\) (land element \(£ 100000\) ) on 1 July 1987. The property's total useful economic life was 50 years on 1 July 1987 and there has been no change in the useful economic life since. Aviemore Ltd has credited the profit on disposal to 'Net operating expenses'.
(3) The fixed assets of Buchan Ltd on 30 November 1997 were valued at \(£ 500000\) (book value \(£ 350000\) ) and were acquired in April 1997. The fixed assets have a total useful economic life of ten years. Buchan Ltd has not adjusted its accounting records to reflect fair values.
(4) All companies use the straight-line method of depreciation and charge a full year's depreciation in the year of acquisition and none in the year of disposal.
(5) Highland plc charges Aviemore Ltd an annual fee of \(£ 85000\) for management services and this has been included in 'Other income'.
(6) Highland plc has accounted for its dividend receivable from Aviemore Ltd in 'Other income'.
(7) It is group policy to amortise goodwill arising on acquisitions over ten years.
Requirement Prepare the consolidated profit and loss account for Highland plc for the year ended 31 March 1998.

Transcribed Image Text:

Highland Aviemore Buchan plc Ltd Ltd '000 '000 '000 Sales 5000 3.000 2910 Cost of sales (3000) (2300) (2820) Gross profit 2000 700 90 Net operating expenses (1000) (500) (150) Other income 230 - Interest payable and similar charges (50) (210) Profit/(loss) before taxation 1230 150 (270) Taxation (300) (50) Profit/(loss) after taxation 930 100 (270) Dividends proposed (200) (50) 730 50 (270)