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Party CoThe following are the draft statements of financial position of Party Co and Single Co as at 30 September 20X5:
    Party Co Single Co Adier
    $'000 $'000 $'000
Assets        
Non‐current assets        
Property, plant and equipment          392,000 84,000      21,000
Investments           120,000  Nil   
           512,000          84,000      21,000
         
Current assets            94,700          44,650  
Total assets          606,700        128,650  
         
Equity and liabilities        
Equity        
Equity shares    190,000 60,000        5,000
Retained earnings    210,000 36,500      15,000
Revaluation surplus   41,400 4,000        6,000
           441,400        100,500      26,000
Non‐current liabilities        
    Party Co Single Co Adier
    $'000 $'000 $'000
Assets        
Investments          (293,400)  Nil   

The following information is relevant:

1.

On 1 October 20X4, Party Co acquired 80% of the share capital of Single Co. At this date the retained earnings of Single Co were $34m and the revaluation surplus stood at $4m. Party Co paid an initial cash amount of $92m and agreed to pay the owners of Single Co a further $28m on 1 October 20X6. The accountant has recorded the full amounts of both elements of the consideration in investments. Party Co has a cost of capital of 8%. The appropriate discount rate is 0∙857

2. On 1 October 20X4, the fair values of Single Co’s net assets were equal to their carrying amounts with the exception of some inventory which had cost $3m but had a fair value of $3∙6m. On 30 September 20X5, 10% of these goods remained in the inventories of Single Co.

3. During the year, Party Co sold goods totalling $8m to Single Co at a gross profit margin of 25%. At 30 September 20X5, Single Co still held $1m of these goods in inventory. Party Co’s normal margin (to third party customers) is 45%.

4. The Party group uses the fair value method to value the non‐controlling interest. At acquisition the non‐controlling interest was valued at $15m.

Required:

A. Prepare the consolidated statement of financial position of the Party group as at 30 September 20X5.  
B. Party Co has a strategy of buying struggling businesses, reversing their decline and then selling them on at a profit within a short period of time. Party Co is hoping to do this with Single Co.
As an adviser to a prospective purchaser of Single Co, explain any concerns you would raise about making an investment decision based on the information available in the Party Group’s consolidated financial statements in comparison to that available in the individual financial statements of Single Co.  

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