On 1 September 20X7 Tyzo Co acquired 6 million $1 shares in Kono Co at $2.00 per share. At that date

Kono Co produced the following interim financial statements.

$m $m

Property, plant and equipment Trade payables 3.2

(note 1) 16.0 Taxation 0.6

Inventories (note 2) 4.0 Bank overdraft 3.9

Receivables 2.9 Long-term loans 4.0

Cash in hand 1.2 Share capital ($1 shares) 8.0

Retained earnings 4.4

24.1 24.1

Notes

1 The following information relates to the property, plant and equipment of Kono Co at 1 September

20X7.

$m

Gross replacement cost 28.4

Net replacement cost (gross replacement cost less depreciation) 16.6

Economic value 18.0

Net realisable value 8.0

2 The inventories of Kono Co which were shown in the interim financial statements are raw materials

at cost to Kono Co of $4 million. They would have cost $4.2 million to replace at 1 September

20X7.

3 On 1 September 20X7 Tyzo Co took a decision to rationalise the group so as to integrate Kono Co.

The costs of the rationalisation were estimated to total $3.0 million and the process was due to

start on 1 March 20X8. No provision for these costs has been made in the financial statements

given above.

Required

Compute the goodwill on consolidation of Kono Co that will be included in the consolidated financial

statements of the Tyzo Co group for the year ended 31 December 20X7, explaining your treatment of the

items mentioned above. You should refer to the provisions of relevant accounting standards.