Richard acquired 75% of the issued share capital of Sherin on 1 January 20X4 for $8,720,000. In addition, Richard also invested in $1 million of Tom’s 5% loan notes at par value. An extract of the financial statements of Richard and Sherin as at 31 March 20X4 is presented below:
Equity and liabilities $000 $000
Retained earnings 1,290
Total equity 21,680 6,090
5% loan notes 20X9 16,440 11,180
Current liabilities 2,640 1,410
The following information is relevant to the preparation of the consolidated financial statements:
(i) At acquisition, the fair value of land owned by Sherin exceeded its cost by $1,000,000. This land was still owned at 31 March 20X4.
(ii) During the post‐acquisition period, Sherin Co sold goods to Richard Co for $500,000, on which it earned a margin of 10%. 80% of the goods remained in Richard’s inventory at the year end. At 31 March 20X4 Sherin was still owed half of the total amount invoiced to Richard for these goods.
(iii) The fair value of the non‐controlling interest in Sherin at the date of acquisition was $2,400,000.
(iv) For the year ended 31 March 20X4, Sherin made a profit after tax of $240,000.