On 1 June 20X2, Premier acquired 80 per cent of the equity share capital of Sanford. The consideration consisted of two elements: a share exchange of three shares in Premier for every five acquired shares in Sanford and the issue of a €100 6 per cent loan note for every 500 shares acquired in Sanford. The share issue has not yet been recorded by Premier, but the issue of the loan notes has been recorded. At the date of acquisition, shares in Premier had a market value of €5 each. The summarized draft financial statements of both companies are:

The following information is relevant: 

(i) At the date of acquisition, the fair values of Sanford’s assets were equal to their carrying amounts with the exception of its property. This had a fair value of €1.2m below its carrying amount. This would lead to a reduction of the depreciation charge (in cost of sales) of €50,000 in the post-acquisition period. Sanford has not incorporated this value change into its own financial statements. Premier’s group policy is to revalue all properties to current value at each year end. On 30 September 20X2, the value of Sanford’s property was unchanged from its value at acquisition, but the land element of Premier’s property had increased in value by €500,000, although this has not yet been recorded by Premier. 

(ii) Sales from Sanford to Premier throughout the year ended 30 September 20X2 had consistently been €1m per month. Sanford made a mark-up on cost of 25 per cent on these sales. Premier had €2m of inventory (at cost to Premier) that had been supplied in the post-acquisition period by Sanford as at 30 September 20X2. 

(iii) Premier had a trade payable balance owing to Sanford of €350,000 as at 30 September 20X2. This agreed with the corresponding trade receivable in Sanford’s books. 

(iv) Premier’s investments include investments that have increased in value by €300,000 during the year. The other equity reserve relates to these investments and is based on their value as at 30 September 20X1. There were no acquisitions or disposals of any of these investments during the year ended 30 September 20X2. 

(v) Goodwill has not been impaired as at 30 September 20X2. 

Required: 

(a) Prepare the consolidated profit and loss account for Premier for the year ended 30 September 20X2. 

(b) Prepare the consolidated statement of financial position for Premier as at 30 September 20X2.

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Statements of profit or loss for the year ended 30 September 20X2 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Finance costs Profit before tax Corporation tax Profit for the year Statements of financial position as at 30 September 20X2 Assets Non-current assets Property, plant and equipment Investments Current assets Total assets Equity and liabilities Equity Equity shares of €1 each Land revaluation reserve - 30 September 20X1 (Note (i)) Other equity reserve - 30 September 20X1 (Note (iv)) Profit and loss account Liabilities Non-current liabilities: 6% loan notes Current liabilities Total equity and liabilities Premier €000 92,500 (70,500) 22,000 (2,500) (5,500) (100) 13,900 (3,900) 10,000 Premier €000 25,000 1,800 26,800 12,500 39,300 12,000 1,500 500 12,300 26,300 3,000 10,000 13,000 39,300 Sanford €000 45,000 (36,000) 9,000 (1,200) (2,400) 5,400 (1,500) 3,900 Sanford €000 13,900 13,900 2,400 16,300 5,000 4,500 9,500 6,800 6,800 16,300