Consolidated Financial Statements Oak plc acquired 70% of Elm Ltd's equity shares for 300,000 on 1 January 2018. At the date of acquisition Elm Ltd had retained earnings of 190,000. The two companies' financial statements are presented as follows as at 31 December 2018: Statements of Financial Position as at 31 December 2018 Oak plc '000 Elm Ltd '000 Assets Non-current assets Property, plant and equipment Investment Elm Ltd 200 1,940 300 2,240 200 Current assets Inventories Trade receivables Cash and bank 500 650 170 1320 3,560 Total assets Equity and liabilities Equity Share capital, 1 Retained earnings Revaluation surplus 2,000 500 20 2,520 Noncurrent liabilities Bank loan 500 Current liabilities Trade payables Tax payable 450 90 540 3,560 Total equity and liabilities Elm Ltd '000 1,000 600 400 325 Statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018 Oak plc '000 Sales revenue 5,000 Cost of sales 2.900 Gross profit 2,100 Other expenses 1.710 Profit before interest and tax 390 Interest expense Profit before tax 360 Income tax expense Profit for the year Other comprehensive income: Gain on revaluation of property Total comprehensive income for the year 290 1 270 Additional information: 1. In mid-December 2018 Oak plc sold goods to Elm Ltd on credit and sent an invoice for 200,000. Elm Ltd received the goods and the invoice but has not yet paid for the goods. The goods had cost Oak plc 150,000. All the goods are in Elm's inventory. 2. On the date of acquisition the fair value of one item (land) in Elm's property, plant and equipment exceeded its carrying amount by 50,000. This valuation has not been reflected in the books of Elm Ltd. 3. It is the group policy to value the non-controlling interest at acquisition at fair value. The fair value of the non-controlling interest in Elm Ltd at the date of acquisition was 70,000. 4. Goodwill has suffered no impairment. 5. Elm Ltd has issued no shares since the acquisition. 6. Elm Ltd has not declared or paid any dividends in 2018. 7. There are no depreciation consequences of the fair value adjustment (as the underlying item was land). REQUIRED: 1. Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2018 and the statement of financial position as at 31 December 2018 for Oak plc group. NB! It is essential that you show all your workings. 2. Explain why intra-group transactions and balances are eliminated in consolidation. Use the relevant examples from the statements that you have prepared in Requirement 1 to illustrate your explanation. Consolidated Financial Statements Oak plc acquired 70% of Elm Ltd's equity shares for 300,000 on 1 January 2018. At the date of acquisition Elm Ltd had retained earnings of 190,000. The two companies' financial statements are presented as follows as at 31 December 2018: Statements of Financial Position as at 31 December 2018 Oak plc '000 Elm Ltd '000 Assets Non-current assets Property, plant and equipment Investment Elm Ltd 200 1,940 300 2,240 200 Current assets Inventories Trade receivables Cash and bank 500 650 170 1320 3,560 Total assets Equity and liabilities Equity Share capital, 1 Retained earnings Revaluation surplus 2,000 500 20 2,520 Noncurrent liabilities Bank loan 500 Current liabilities Trade payables Tax payable 450 90 540 3,560 Total equity and liabilities Elm Ltd '000 1,000 600 400 325 Statements of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2018 Oak plc '000 Sales revenue 5,000 Cost of sales 2.900 Gross profit 2,100 Other expenses 1.710 Profit before interest and tax 390 Interest expense Profit before tax 360 Income tax expense Profit for the year Other comprehensive income: Gain on revaluation of property Total comprehensive income for the year 290 1 270 Additional information: 1. In mid-December 2018 Oak plc sold goods to Elm Ltd on credit and sent an invoice for 200,000. Elm Ltd received the goods and the invoice but has not yet paid for the goods. The goods had cost Oak plc 150,000. All the goods are in Elm's inventory. 2. On the date of acquisition the fair value of one item (land) in Elm's property, plant and equipment exceeded its carrying amount by 50,000. This valuation has not been reflected in the books of Elm Ltd. 3. It is the group policy to value the non-controlling interest at acquisition at fair value. The fair value of the non-controlling interest in Elm Ltd at the date of acquisition was 70,000. 4. Goodwill has suffered no impairment. 5. Elm Ltd has issued no shares since the acquisition. 6. Elm Ltd has not declared or paid any dividends in 2018. 7. There are no depreciation consequences of the fair value adjustment (as the underlying item was land). REQUIRED: 1. Prepare the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2018 and the statement of financial position as at 31 December 2018 for Oak plc group. NB! It is essential that you show all your workings. 2. Explain why intra-group transactions and balances are eliminated in consolidation. Use the relevant examples from the statements that you have prepared in Requirement 1 to illustrate your explanation