On 1 April 2019, London acquired 116 million of Birmingham companies 145 million ordinary shares for an immediate cash payment of 210 million and issued 10% 100 loan notes for every 200 shares acquired.

At the date of acquisition, Birmingham owned a recently built property that was carried at its depreciated construction cost of 62 million. The fair value of the property at the date of acquisition was 82 million and it had an estimated remaining life of 20 years.

Birmingham also had an internally developed brand which was valued, at the acquisition date, at 25 million with a remaining life of 10 years.

The inventory of Birmingham at 31 March 2020 includes goods supplied by London for a sale price of 56 million. London adds a mark-up of 40% on cost to all sales.

a) What is the total amount of the consideration transferred by London to acquire the investment in Birmingham?

b) What will be the amount of the adjustment to group retained earnings at 31 March 2020 in respect of the movement on the fair value adjustment?

c) What is the amount of unrealised profit on intra-group trading?

d) Birmingham recently lost some large contracts and the directors of London are wondering if Birmingham can be excluded from consolidation next year. Explain the circumstances which would allow a subsidiary to be excluded from consolidation.

e) Explain the accounting concept of goodwill, and how goodwill should be accounted for in the Birmingham group financial statements.