FAIR VALUES IN CONSOLIDATION

Hi, The question below that i need help with is from BPP exam kit. I am also going to type the answer which does not make sense to me. First question is should inventories not be valued at lower of cost and NRV (fair value less costs to sell) in this case cost (as fv of inventories is higher than cost) ? Contingent liability is deducted from net assets upon acquisition. Why would we deduct the fair value gain on inventory and add the contingent liability? Question: 11.16 MN acquired 70% of PQ's equity shares on 1 January 20X0. At that date, the fair value of PQ's net assets was the same as their carrying amount with the following exceptions: • Inventory was found to have a fair value of $20,000 higher than its carrying amount — this inventory was sold in the year ended 31 December 20X0 • A contingent liability with a fair value of $18,000 was disclosed in PQ's financial statements — this liability was settled in the year ended 31 December 20X0 For the year ended 31 December 20X0, the profit for the year of MN and PQ amounted to $750,000 and $410,000 respectively. What is the consolidated profit for the year that should be included in the MN group's consolidated statement of profit or loss for the year ended 31 December 20X0? Answer: The correct answer is: $1,158,000 This is calculated as follows: MN — profit for the year 750,000 PQ — profit for the year 410,000 Fair value adjustments — movements in the year: Inventories — sold in year (20,000) Contingent liability — settled in the year 18,000 Consolidated profit for the year 1,158,000