Question 2 (25 marks) On 1 January 2020, Villa acquired 90% of the equity share capital of Grape in a share exchange in which Villa issued two new shares for every three shares it acquired in Grape. Additionally, on 31 December 2020, Villa will pay the shareholders of Grape RM 1-76 per share acquired. Villa's cost of capital is 10% per annum. At the date of acquisition, shares in Villa and Grape had a stock market value of RM6.50 and RM2 50 each, respectively. Income statements for the year ended 30 September 2020 Villa Grape RM'000 RM'000 Revenue Cost of sales Gross profit Distribution cost Administration expenses. 64,600 38,000 -51,200 -26,000 13,400 12,000 -1,600 -1,800 -3,800 -2,400 Income from investment 500 NIL Finance cost 420 NIL PBT 8080 7,800 Income tax -2,800 -1,600 PAT 5,280 6,200 Equity as at 1 October 2019 Equity share of RM 1 each. Retained earnings 30,000 10,000 54,000 35,000 The following information is relevant: (i) At the date of acquisition, the fair values of Grape's assets were equal to their carrying amounts with the exception of two items: - An item of plant had a fair value of RM 1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.