P has two group companies, S and A. The income statements for P, S and A for the year ended 31 December 2021 are given as follows:

Income statements for the year ending 31 December 2021

P Ltd acquired 60% of S Ltd on 1 January 2015 for $3,024,000, gaining significant influence over S Ltd. On this date, the share capital of S Ltd was £900,000 and the retained earnings of S Ltd was $1,845,000.

P Ltd acquired 25% of A Ltd for $2,700,000 on 1 January 2017, gaining partial influence over A Ltd. A Ltd’s share capital and reserves were $1,015,000 on 1 January 2017. The share capital of A Ltd is 180,000 50c shares.

The interest income in P Ltd includes interest income on its 80% holding of bonds issued by S Ltd. P Ltd acquired these bonds without any goodwill arising, on 1 January 2017. The interest expense recorded by S Ltd represents the interest on the full bond issue. All companies have accounted for interest income and interest expense correctly.

During the year S Ltd sold goods costing $27,000 to P Ltd for $189,000. 45% of this inventory is included in P Ltd’s inventory at the year end.

During the year A Ltd sold goods costing $81,000 to P Ltd for $108,000. 20% of this inventory is still in P Ltd’s inventory at the year end.

Goodwill is capitalised. Impairment of 20% of the value of the goodwill of S Ltd was recognised in 2019 and impairment of 70% of the value of the goodwill in A Ltd is recognised in 2021.

At the year-end P Ltd charges both S Ltd and A Ltd a management fee of 10% of turnover. The companies have accounted for the management fee correctly. The management fee income in P Ltd represents management fee income from S Ltd and A Ltd. S Ltd and A Ltd have accounted for management fee expenses under administrative expenses.

The investment income in P Ltd comprises of dividend income from both group and non-group companies.

The retained earnings brought forward as at 1 January 2021 and dividend expense for the year ended 31 December 2021 for P Ltd, S Ltd and A Ltd were as follows:

Required:

Prepare the consolidated income statement for P Ltd for the year ended 31 December 2021.
 

........ Sales a Cost of sales a Gross profit a Investment income* 1,255,000 -a Management fee income a 16,200,000-a (4,320,000):a 11,880,000 a 40,500,000-a (15,930,000):a 24,570,000-a 22,950,000-a (7,965,000) a 14,985,000 a 3,915,000 a Administrative (2,738,250) a (3,795,000) a (2,790,000) a expenses a Distribution costs a (1,260,000) Interest income a Interest expense Profit before tax a 26,281,750-a Tax a Profit after taxa (1,173,000) a (517,500) a 675,000 a (135,000) a (243,000) a 9,774,000 a (945,000) a 8,829,000 a 8,572,500 a (1,269,000) a 7,303,500a (1,350,000) a 24,931,750-a