=+BACK plc (BACK) prepares its financial statements to 31 December each year. On 1 January 2003, BACK acquired 90% of the ordinary share capital of FRONT Limited (FRONT) at a cost of €3,808,000. The draft statements of comprehensive income of BACK and FRONT for the year ended 31 December 2003 are as follows: BACK €000 Revenue Cost of sales Gross profit Operating expenses Operating profit Interest payable and similar charges Interest receivable Profit on ordinary activities before tax Tax on profit on ordinary activities Profit on ordinary activities after tax 90,000 (60,000) 30,000 (9,900) 20,100 (160) ___ 80 20,020 (6,420) 13,600 FRONT €'000 7,800 (4,900) 2,900 760 2,140 (40) sera 20) 27120 400 15720 542 INTERNATIONAL FINANCIAL ACCOUNTING AND REPORTING Additional Information 1. The net assets of FRONT on 1 January 2003 were as follows: Property, plant and equipment Inventory Other net assets Carrying value Fair value €000 2,400 1,200 _ 640 4,240 €000: 2,240 1,040 _ 640 3,920 The difference between the carrying value and the fair value of property, plant and equipment is due to a revaluation of property, while the reduction in inventory relates to a change in the accounting policy for inventory in order to bring FRONT’s inventory into line with those of BACK. Otherwise the accounting policies adopted by FRONT are similar to those of BACK. The required change in the closing inventory value of FRONT to ensure uniform accounting policies is a decrease of €120,000. The fair val- ues shown above have not yet been incorporated into FRONT’s financial statements.