Chambers plc imports household equipment from Germany. On 1 July 2011, the company acquired 60% of the ordinary shares of Court Ltd, which owns a chain of retail shops selling household equipment. Draft financial statements of the two companies at 30June 2012 have been prepared as follows:
Statements of Financial Position
Chambers plc Court Ltd
Property, plant & equipment 1,810 510
Investment in Court Ltd 100 -
Inventory 1,300 830
Trade receivables 2,125 430
Cash at bank 925 -
Total Assets 6,260 1,770
EQUITY & LIABILTIES Equity
50p Ordinary shares 500 200
Share premium account 900 -
Retained earnings 3,060 570
4% Debenture stock - 100
Bank overdraft - 150
Trade payables 1,800 750
Total Equity & Liabilities 6,260 1,770
Statements of Profit or Loss
Chambers plc Court Ltd
Turnover 15,650 5,664
Cost of sales 10,995 4,530
Gross profit 4,655 1,134
Distribution costs 2,070 450
Administrative expenses 1,035 382
Operating profit 1,550 302
Investment income 80 -
Finance costs - 11
Profit before taxation 1,630 291
Taxation 490 91
Profit after taxation 1,140 200
The purchase by Chambers plc of the shares in Court Ltd was financed by the payment of 25p (£0.25) cash per share and by the issue of 1 share in Chambers for every 2 shares in Court. Only the cash component has been accounted for in the draft Statement of Financial Position of Chambers.At the time of acquisition shares in Chambers were trading at 370p per share; shares in Court were at that time valued at 180p. The balance of Court's retained earnings was £470 million on 30 June 2011. There have been no changes in the ordinary share capital of Court Ltd over the year.Chambers plc intends to use the fair value method to account for goodwill arising on acquisition.
1. When Chambers plc acquired its interest in Court, it valued that company's freehold property at £30 million above its book value. The freehold property had an average remaining useful life of 15 years at that time. Depreciation should be charged to distribution costs.
2. During the year ended 30 June 2012 Court purchased goods from Chambers for £180 million. Of these, items which had cost Court £90 million are still included in inventory at the year-end. Chambers has a margin on selling price of 30%.
3. Included in Chambers' trade receivables is a balance due from Court of £60 million. Court'strade payables include a balance of £20 million due to Chambers. On 30 June 2012 a bank transfer for £40 million had been sent by Court to Chambers. It was not received in Chambers bank account until 1st July.
4. During the year Chambers plc paid a dividend of £340 million and Court Ltd paid a dividend of £100 million. The balance of Chambers retained earnings was £2,260 million at 30th June 2011.
Prepare consolidated financial statements for Chambers plc and its subsidiary as at 30 June 2012 including a Consolidated Statement of Profit or Loss, a Consolidated Statement of Changes in Equity and a Consolidated Statement of Financial Position.