On 1 January 2014, Diamond ltd acquired 80% of the equity share capital of Gold ltd. The consideration was satisfied by a share exchange of two shares in Diamond ltd for every three acquired shares in Gold ltd. At the date of acquisition, shares in Diamond ltd and Gold ltd had a market value of R3 and R2.50 each respectively. Diamond ltd will also pay cash consideration of 27.5 cents on 1 January 2015 for each acquired share in Gold ltd. Diamond ltd has a cost of capital of 10% per annum. None of the consideration has been recorded by Diamond ltd. Below are the summarised draft financial statements of both companies. Statements of profit or loss and other comprehensive income for the year ended 30 September 2014 Statements of financial position as at 30 September 2014 The following information is relevant: (i) At the date of acquisition, the fair values of Gold Ltd.s assets and liabilities were equal to their carrying amounts with the exception of Gold Ltds property, which had a fair value of R4 million above its carrying amount. For consolidation purposes, this led to an increase in depreciation charges (in cost of sales) of R100 000 in the post-acquisition period to 30 September 2014. Gold ltd has not incorporated the fair value property increase into its entity financial statements. The policy of the Diamond ltd group is to revalue all properties to fair value at each year end. On 30 September 2014, the increase in Diamond Ltds property has already been recorded, however, a further increase of R600 000 in the value of Gold Ltds property since its value at acquisition and 30 September 2014 has not been recorded. (ii) On 30 September 2014, Diamond ltd accepted a R1 million 10% loan note from Gold ltd. Sales from Diamond ltd to Gold ltd throughout the year ended 30 September 2014 had consistently been R300 000 per month. Diamond ltd made a mark-up on cost of 25% on all these sales. R600 000 (at cost to Gold ltd) of Gold Ltd.s inventory at 30 September 2014 had been supplied by Diamond ltd in the post-acquisition period. (iii) Diamond ltd had a trade receivable balance owing from Gold ltd of R1.2 million as at 30 September 2014. This differed to the equivalent trade payable of Gold ltd due to a payment by Gold ltd of R400 000 made in September 2014 which did not clear Diamond Ltd.s bank account until 4 October 2014. Diamond Ltd.s policy for cash timing differences is to adjust the parents financial statements. (iv) Diamond Ltd.s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose Gold Ltd.s share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest. (v) Due to recent adverse publicity concerning one of Gold Ltd.s major product lines, the goodwill which arose on the acquisition of Gold ltd has been impaired by R500 000 as at 30 September 2014. Goodwill impairment should be treated as an administrative expense. (vi) Assume, except where indicated otherwise, that all items of income and expenditure accrue evenly throughout the year. REQUIRED: a) Prepare the consolidated statement of profit or loss and other comprehensive income for Diamond ltd for the year ended 30 September 2014. (20) b) Prepare the consolidated statement of financial position for Diamond ltd as at 30 September 2014. (24) Diamond ltd is in the process of recording the acquisition of another subsidiary, Dilemma, and has identified two items when reviewing the fair values of Dilemmas assets. The first item relates to R1 million spent on a new research project. This amount has been correctly charged to profit or loss by Dilemma, but the directors of Diamond ltd have reliably assessed the fair value of this research to be R1.2 million. The second item relates to the customers of Dilemma. The directors of Diamond ltd believe Dilemma has a particularly strong list of reputable customers which could be sold to other companies and have assessed the fair value of the customer list at R3 million. REQUIRED: State whether (and if so, at what value) the two items should be recognised in the consolidated Statement of financial position of Diamond ltd on the acquisition of Dilemma.