QUESTION 3 [25 MARKS] On 01 November 2020, Palm Ltd purchased 75% of Sandwort Ltd. The statements of profit or loss for the year ended 31 March 2021 of the two entities are as follows:

1. The group depreciation policy is to charge depreciation on a proportionate basis and should be included in cost of sales.

2. The fair value of Sandwort Ltds net assets differed from its carrying values at 01 November 2020. Plant was $ 15 million in excess of its net book value. Plant had five years remaining at the date of acquisition. No adjustment was made for this in Sandwort Ltds financial statements.

3. On 01 January 2021, Palm Ltd transferred an item of machinery to Sandwort Ltd for $ 1.8 million. The machine had originally cost $ 2.5 million on 01 January 2019. Machines have a useful life of five years.

4. On 01 February 2021, Sandwort Ltd sold $ 10 million of goods to Palm Ltd at a mark-up of 40%. Three quarters of these goods had been sold to third parties by the year end of 31 March 2021.

5. An impairment test carried out on 31 March 2021 concluded that consolidated goodwill was impaired by $ 2 million. The groups policy is to value the non-controlling interest using the proportionate method.

6. All income and expenses are deemed to accrue evenly throughout the year unless otherwise indicated.

REQUIRED : Prepare the consolidated statement of profit or loss for the year ended 31 March 2021.

Statements of profit or loss for the year ended 31 March 2021 Palm Ltd Sandwort Ltd $ 000 $ 000 Revenue 15,000 12,600 Cost of sales (6.150) (5,250) Gross profit 8,850 7,350 Dividend income from Sandwort Ltd 54 Distribution costs (210) (112) Administrative expenses (270) (150) Profit before tax 8,424 7,088 Income tax expense (360) (255) Profit for the year 8.064 6.833 The following information is relevant