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Heathman CoThe Heathman group owns a number of subsidiaries. On 31 March 20X6, the Heathman group sold its entire holding in Grey. The consolidated statement of profit or loss of the Heathman group for 20X6 has been produced without the results of Grey due to its disposal. No profit or loss on disposal has been included in the 20X6 consolidated statement of profit or loss.
Extracts from the consolidated statements of profit or loss for the Heathman group are below:

 Statements of profit or loss (extracts) for the year ended 31 March

                                                                                                    20X6                                    20X5

                                                                                                         $000                                    $000

Revenue                                                                                         86,000                                99,000

Cost of sales (note (ii))                                                              (63,400)                             (67,200)

Gross profit                                                                                   22,600                                31,800

Other income (notes (i) and (iii))                                                3,400                                 1,500

Operating expenses                                                                    (21,300)                             (23,200)

Profit from operations                                                                   4,700                              10,100

Finance costs                                                                                (1,500)                                (1,900)

The following notes are relevant:

1. Grey was based in the Heathman head offices, for which it pays annual rent to Heathman of $300,000, significantly below the cost of equivalent office space in Grey’s local area. As Grey is no longer in the group, Heathman hasincluded thisincome within other income. Grey expenses rent payments in operating expenses.     
2. Greysold goodstotalling $8 million to Heathman (included in Heathman’s cost ofsales above) during the year. Heathman held none of these goods in inventory at 31 March 20X6. Grey      made a margin of 40% on all goods sold to Heathman.
3. Heathman received a dividend of $1 million from Grey during the year, as well asrecording interest of $500,000 on a loan given to Grey in 20X3. Both of these amounts are included within Heathman’s other income.
4. The following selected ratios for the Heathman group have been calculated for the years ended 31 March 20X5 and 31 March 20X6 from the information above.

                                                                 20X6                                    20X5

Gross profit margin                                                      26.3%                                  32.1%

Operating margin                                                           5.5%                                  10.2%

Interest cover                                                                3.1 times                            5.3 times

5. Grey’s individual statement of profit or loss for the year ended shows the following:  

Revenue                                                                                                        16,000

Cost of sales                                                                                                 (10,400)

Gross profit                                                                                                    5,600

Operating expenses                                                                                   (3,200)

Profit from operations                                                                                2,400

Finance costs                                                                                                 (900)

Required:

A. Calculate the equivalent ratios for the consolidated statement of profit or loss for the year ended 31 March 20X6 if Grey had been consolidated  
B. Analyse the performance of the Heathman group for the year ended 31 March 20X6. This should also include a discussion of Grey  

C. Heathman acquired 80% of Grey’s 10 million $1 shares on 1 April 20X1 for $17 million when Grey had retained earnings of $3 million. Heathman uses the fair value method    for valuing the non‐controlling interest. At acquisition the fair value of the non‐controlling interest was $3 million.

On 31 March 20X6, Heathman sold its entire shareholding in Grey for $25 million when Grey had retained earnings of $7 million. Goodwill had suffered no impairment since acquisition.

Calculate the gain/loss on disposal to be shown in the consolidated statement of profit or loss for the year ended 31 March 20X6.

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