Q1) On 1 April 20X8, Pedantic acquired 60% of the equity share capital of Sophistic in ashare exchange of two shares in Pedantic for three shares in Sophistic. The issue of shares has not yet been recorded by Pedantic. At the date of acquisition shares in Pedantic had a market value of $6 each. Below are the summarised draft financial statements of both companies.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPT 20X8

Pedantic

Sophistic

$'000

$'000

Revenue

85,000

42,000

Cost of sales(63,000)(32,000)

Gross profit

22,000

10,000

Distribution costs

(2,000)

(2,000)

Administrative expenses

(6,000)

(3,200)

Finance costs( 300)(400)

Profit before tax13,7004,400

Income tax expense(4,700)(1,400)

Profit for the year 9,0003,000

STATEMENTS OF FINANCIAL POSITION AS AT 30 SEPTEMBER 20X8

Pedantic

Sophistic

Assets

$'000

$'000

Non-current assets

Property, plant and equipment

40,600

12,600

Current assets

16,000

6,600

Total assets

5 6,600

1 9,200

Equity and liabilities

Equity shares of $1 each

10,000

4,000

Retained earnings35,4006,500

45,400

10,500

Non-current liabilities

10% loan notes

3,000

4,000

Current liabilities

8,200

4,700

Total equity and liabilities

The following information is relevant.

56,600

19,200

(i)At the date of acquisition, the FVs of Sophistic's assets were equal to their carrying amounts with the exception of an item of plant, which had a fair value of $2 million in excess of its carrying amount. It had a remaining life of five years at that date (straight-line depreciation is used). Sophistic has not adjusted the carrying amount of its plant as a result of the FV exercise.

(ii)Sales from Sophistic to Pedantic in the post acquisition period were $8 million. Sophistic made a mark up on cost of 40% on these sales. Pedantic had sold $5.2 million (at cost to Pedantic) of these goods by 30 September 20X8.

(iii)Other than where indicated, P/L items are deemed to accrue evenly on a time basis.

(iv)Sophistic's trade receivables at 30 September 20X8 include $600,000 due from Pedantic which did not agree with Pedantic's corresponding trade payable. This was due to cash in transit of $200,000 from Pedantic to Sophistic. Both companies have positive bank balances.

(v)Pedantic has a policy of accounting for any NCI at full fair value. The FV of the NCI in Sophistic at the date of acquisition was estimated to be $5.9 million. Consolidated goodwill was not impaired at 30 September 20X8.

Required

(a)Prepare the consolidated statement of P/L for Pedantic for the year ended 30 Sep 20X8.

(b)Prepare the consolidated statement of financial position for Pedantic as at 30 Sep 20X8.