On 1 June 2020, Merlin Ltd acquired 60% of the ordinary shares in Arthur Ltd. The draft summarised financial statements of Merlin Ltd and Arthur Ltd as at 31 December 2020 are shown below: ASSETS Merlin Ltd Arthur Ltd Non-current assets Property, plant and equipment 1,264,200 949,350 Investments 265,000 1,529,200 949,350 Current assets Inventories 364,700 196,800 Trade receivables 291,330 203,500 Cash and cash equivalents 106,220 74,500 762,250 474,800 Total assets 2,291,450 1,424,150 EQUITY AND LIABILITIES Equity Ordinary share capital (1 shares) 820,000 400,000 Retained earnings 1,179,500 775,550 1,999,500 1,175,550 Current liabilities Trade payables 205,700 157,600 Tax liability 86,250 91,000 291,950 248,600 Total equity and liabilities 2,291,450 1,424,150 The following information is also relevant: (1) The shares in Arthur Ltd were acquired for the following consideration: Cash of 180,000 paid on 1 June 2020. A further cash payment of 110,000, payable on 1 June 2023. An appropriate discount rate is 4% per annum. 600,000 ordinary shares in Merlin Ltd. The market value of one ordinary share in Merlin Ltd on 1 June 2020 was 1.25. This had risen to 1.30 by 31 December 2020. The cash paid on 1 June 2020 was debited to investments and credited to bank. No other entries have made in relation to the consideration. Arthur Ltd made a profit for the year ended 31 December 2020 of 102,600. Merlin Ltd uses the proportionate method to measure goodwill and the non- controlling interest for Arthur Ltd. The fair value of Merlin Ltd's assets and liabilities at acquisition were equal to their carrying amounts with the exception of a machine. This machine had a fair value which was 30,000 higher than the carrying amount within the financial statements of Merlin Ltd. The machine had a useful life of 6 years when it was acquired 2 years ago on 1 January 2019. The useful life has not changed. (2) On 1 October 2020, Arthur Ltd sold a piece of land to Merlin Ltd for 100,000 which had originally cost 80,000. (3) On 1 March 2020, Merlin Ltd acquired 30% of the ordinary shares of Lancelot Ltd for 85,000 cash. This investment gave Merlin Ltd significant influence over Lancelot Ltd. Lancelot Ltd's profit for the year ended 31 December 2020 was 6,000. This was much lower than originally expected and as a result, the investment in Lancelot Ltd has become impaired by 20,000. The cash paid on 1 March 2020 was debited to trade receivables and credited to bank. No other entries have made in relation to the investment in Lancelot Ltd. (4) On 1 November 2020, Arthur Ltd sold goods to Merlin Ltd. These goods had originally cost Arthur Ltd 12,000 and were sold at a mark-up of 25%. Half of these goods remain in inventory at the year end. On 1 December 2020, Merlin Ltd sold goods to Lancelot Ltd at a selling price of 5,000. These were sold at a margin of 40% and all of these goods remain in inventory at the year end. (5) On the 31 December 2020, Merlin Ltd showed a trade payable balance of 22,000 owing to Arthur Ltd. Arthur Ltd showed a trade receivable balance of 29,500 owed from Merlin Ltd. The difference is explained by cash in transit. You can assume that all income, expenses and profits accrue evenly throughout the year. REQUIRED: (a) There is no maximum word count for this requirement. Prepare the consolidated statement of financial position for Merlin Ltd as at 31 December 2020. You should show your workings. [36 marks] (b) Please note: the maximum word count for this requirement is 160 words. Briefly discuss why an adjustment is made for intra-group trade receivables and trade payables balances within the consolidated statement of financial position. You may refer to (5) above as part of your answer. [4 marks] (c) Please note: the maximum word count for this requirement is 400 words. IFRS 3 allows an accounting policy choice, on a transaction by transaction basis, to measure non-controlling interests either at fair value or the non- controlling interest's proportionate share of net assets. Evaluate the extent to which this accounting policy choice provides information that is useful to the users of financial statements. You should consider the characteristics of financial information according to the conceptual framework as part of your answer. [10 marks] TOTAL 50 MARKS