Large plc, a manufacturer and wholesaler, purchased 600,000 of the 800,000 issued ordinary shares of a smaller company, Small Ltd, on 1 January 2005 when the retained earnings account of Small Ltd had a credit balance of £72,000.

The latest accounts of the two companies are:

The intangible non-current asset section of the balance sheet of Large plc has not yet been amended prior to consolidation to take account of the provisions of accounting standards regarding intangible assets.
The inventory of Large plc contained goods valued at £108,000 purchased from Small Ltd at production cost plus 50%.

Required:

(a) Prepare the consolidated income statement of Large plc and its subsidiary Small Ltd for the year to 30 September 2006.

(b) Prepare the consolidated balance sheet of Large plc and its subsidiary Small Ltd at 30 September 2006.

Transcribed Image Text:

Summary Income Statements for the year to 30 September 2006 (000s) Large plc Revenue 10,830 Small Ltd 2,000 Cost of sales and production services (3,570) (1,100) Gross profit 7,260 900 Administrative and marketing expenses (including depreciation, audit fee and directors' remuneration) (2,592) (180) Operating profit 4,668 720 Dividend received from Small Ltd 180 Net profit before tax 4,848 720 Taxation (2,304) (200) Profit for the year 2,544 520