The financial statements of JJ Ltd and KK Ltd for the year to 30 June 2018 are shown below:

Statements of comprehensive income for the year to 30 June 2018.

Statements of financial position as at 30 June 2018.

Statements of changes in equity for the year to 30 June 2018.

The following information is also available:

1. On 1 July 2014, JJ Ltd paid £3,153,000 to acquire 75% of the ordinary shares and 10% of the preference shares of KK Ltd. On that date, the retained earnings of KK Ltd were £704,000.

2. The fair value of the non-current assets of KK Ltd on 1 July 2014 exceeded their carrying amount by £600,000. This valuation has not been reflected in the books of KK Ltd.

3. KK Ltd has issued no shares since being acquired by JJ Ltd.

4. Goodwill had suffered impairment losses of 30% by 30 June 2017 and there was a further 10% impairment loss during the year to 30 June 2018.

5. JJ Ltd sells goods to KK Ltd at cost plus 60%. During the year to 30 June 2018, these sales totalled £2,400,000, of which £216,000 was still owing to JJ Ltd at the end of the year. The inventory of KK Ltd at 30 June 2018 includes goods bought from JJ Ltd for £512,000.

6. Any depreciation consequences of the fair value adjustment may be ignored.

Required:

(a) Prepare a consolidated statement of comprehensive income for the year to 30 June 2018.

(b) Prepare a consolidated statement of changes in equity for the year to 30 June 2018.

(c) Prepare a consolidated statement of financial position as at 30 June 2018.

(d) Explain how each of these financial statements would differ if the intra-group sales described above were from KK Ltd to JJ Ltd (rather than from JJ Ltd to KK Ltd).

(e) Explain how the consolidated financial statements would differ if the depreciation consequences of the fair value adjustment were not ignored. It may be assumed that the financial statements of KK Ltd for each of the four years to 30 June 2018 would have been charged with additional depreciation of £40,000 if the company had revalued its non-current assets to their fair value on 1 July 2014.

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JJ Ltd £000 KK Ltd £000 5,328 3,552 Sales revenue 21,545 13,335 Cost of sales Gross profit Operating expenses 8,210 4,087 1,776 410 Operating profit Dividends received from KK Ltd 4,123 1,366 377 4,500 1,500 Profit before tax 1,366 450 Тахаtion Profit for the year 3,000 916 JJ Ltd £000 KK Ltd £000 Assets Non-current assets Property, plant and equipment Investment in KK Ltd 5,961 3,153 2,667 9,114 Current assets Inventories 2,215 1,823 101 4,139 1,052 Trade receivables 829 Cash at bank 5 1,886 13,253 4,553 Equity Ordinary share capital Preference share capital Retained earnings 7,000 2,500 800 400 1,949 508 9,749 3,408 Liabilities Current liabilities Trade payables Тахation 2,004 1,500 3,504 695 450 1,145 13,253 4,553