SECTION A: COMPULSORY QUESTION Question 1 Earth bought 30 million shares in Island on 1 October 20X8, when Island had reserves of 45m. During the year to 30 September 20X9, Earth sold goods to Island at a gross profit on selling price of 30 per cent; 50m of these goods remained in Island's stock on 30 September 20X9. Included in Island's 'creditors within one year' is an amount of 45m owed to Earth in respect of a loan made by Earth to Island. Island made a payment of 10m on 30 September 20X9 but this was not received by Earth until 4 October 20X9. On 1 October 20X8, Earth also bought a 30 per cent stake in River, when River had reserves of 30m. Earth has had involvement in day-to-day management policies since that date via a representative on River's board of directors. The respective balance sheets of the companies at 30 September 20X9 were as follows: Earth m Island m River m Property, Plant & Equipment Investment in Island Investment in River 400 55 100 120 70 Stock 90 80 40 Debtors 35 50 20 Loan to Island 55 Bank 10 25 10 190 155 70 Creditors within 1 year 50 140 90 65 730 Creditors more than 1 year 100 630 Share Capital (1) Share Premium Reserves (P&L) 200 120 310 630 120 52222 20 50 120 150 120 150 50 80 70 150