On 1 October 2017 Pumice acquired the following non-current investments:

(i) 80% of the equity share capital of Silverton at a cost of £13.6 million.

(ii) 50% of Silverton's 10% loan notes at par.

(iii) 1.6 million equity shares in Amok at a cost of £6.25 each.

Draft statements of financial position of the three companies at 31 March 2018 are:

The following information is relevant:

(i) The fair values of Silverton's assets were equal to their carrying amounts with the exception of land and plant. Silverton's land had a fair value of £400,000 in excess of its carrying amount and plant had a fair value of £1.6 million in excess of its carrying amount. The plant had a remaining life of four years (straight-line depreciation) at the date of acquisition.

(ii) In the post-acquisition period, Pumice sold goods to Silverton at a price of £6 million. These goods had cost Pumice £4 million. Half of these goods were still in the inventory of Silverton at 31 March 2018. Silverton had a balance of £1.5 million owing to Pumice at 31 March 2018 which agreed with Pumice's records.

(iii) The net profit after tax for the year ended 31 March 2018 was £2 million for Silverton and £8 million for Amok. Assume profits accrued evenly throughout the year.

(iv) An impairment test at 31 March 2018 concluded that consolidated goodwill was impaired by £400,000 and the investment in Amok was impaired by £200,000.

(v) No dividends were paid during the year by any of the companies.

(vi) Non-controlling interests in subsidiaries are to be measured at the appropriate. Proportion of the subsidiary's identifiable net assets.

Required:

(a) Explain how the investments purchased by Pumice on 1 October 2017 should be treated in its consolidated financial statements.

(b) Prepare the consolidated statement of financial position for Pumice as at 31 March 2018.

(ACCA)

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Pumice Silverton Amok £000 £000 £000 Assets Non-current assets Property, plant and equipment Investments 20,000 26,000 8,500 16,500 1,500 46,000 15,000 8,500 8,000 18,000 11,000 Current assets 16,500 29,000 61,000 Equity Ordinary shares of £1 each Retained earnings 3,000 8,000 10,000 37,000 4,000 20,000 11,000 47,000 24,000 Liabilities Non-current liabilities 8% loan notes 4,000 10% loan notes 2,000 3,500 5,000 Current liabilities 10,000 61,000 16,500 29,000