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Question 2: The statements of comprehensive income for Alicante plc, London plc and Madrid plc for the year ended 31 October 2020 are as follows: Statements of comprehensive income for the year ended 31 October 2020 Alicante London Madrid E000 E000 E000 Sales 135,000 77,000 66,500 Cost of sales 45,000 32,000 24.000 Gross profit 90.000 45,000 42.500 Expenses 23.500 26,600 37.000 Dividends received 6.850 3.000 Profit before tax 73,350 18,400 8.500 Corporate Taxation 20.350 8,750 3.500 Profit for the year 53.000 9,650 5.000 Dividends paid in year 26,000 5,250 2.000 The following information is also relevant: 1. Alicante plc acquired 60% of the shares in London plc on 1 November 2016 for a cash consideration of 51,500,000. The balance on the retained earnings of London plc was 45,000,000 and the balance on the general reserve of London plc was 20,000,000 on that date. 2. Alicante plc also acquired 30% of the shares in Madrid plc on 1 November 2017. The balance on Madrid plc's retained earnings was 12,500,000 and the general reserve of Madrid plc was 2,000,000 on that date. There was a revaluation on Madrid Pic's net assets on that date and this revaluation has been adjusted in the statements. 3. During the year Alicante plc sold London plc goods for 7,000,000 which included a mark-up of 40%. Fifty-five percent (55%) of these goods were still in inventory at the end of the year. 4. As at 31 October 2020, goodwill impaired by 20%, and the Method 1 is used to calculate the goodwill. s. During the year, the corporate taxation expense at Alicante plc has been overestimated by 1,500,000, and this has not been adjusted. b. IFRS 10 and also IAS 28 detail the criteria for determining whether a company should be considered a subsidiary or an associated. A key issue is the distinction between significant influence and control. You are required to critically evaluate the effectiveness of these criteria and discuss the usefulness of consolidated financial statements to shareholders and investors. (8 Marks) c. The criteria for determining the extent of goodwill upon the acquisition of a subsidiary follows two different approaches. Method 2 in the consolidation uses the fair value measurement approach. You are required to critically evaluate the fair value approach of measuring goodwill. (5 Marks) [Total 25 Marks]