Pyramid Consolidated SOFP

Good Morning Sir, This Consolidated SOFP question is taken from the Kaplan Kit. The answer in the book showed there is $3200 intra Group transaction that was cancelled out from both the receivables and payables. I dont understand where there got $3200 from. See full question below:

On 1 April 2011, Pyramid acquired 80% of Square’s equity shares by means of an immediate share exchange and
a cash payment of 88 cents per acquired share, deferred until 1 April 2012. Pyramid has recorded the share
exchange, but not the cash consideration. Pyramid’s cost of capital is 10% per annum.
The summarised statements of financial position of the two companies as at 31 March 2012 are:
Pyramid Square
Assets $’000 $’000
Non-current assets
Property, plant and equipment 38,100 28,500
Investments – Square 24,000
– Cube at cost (note (iv)) 6,000
– Loan notes (note (ii)) 2,500
– Other equity (note (v)) 2,000 nil ––––––– –––––––
72,600 28,500
Current assets
Inventory (note (iii)) 13,900 10,400
Trade receivables (note (iii)) 11,400 5,500
Bank (note (iii)) 900 600 ––––––– –––––––
Total assets 98,800 45,000 ––––––– –––––––
Equity and liabilities
Equity
Equity shares of $1 each 25,000 10,000
Share premium 17,600 nil
Retained earnings – at 1 April 2011 16,200 18,000
– for year ended 31 March 2012 14,000 8,000 ––––––– –––––––
72,800 36,000
Non-current liabilities
11% loan notes (note (ii)) 12,000 4,000
Deferred tax 4,500 nil
Current liabilities (note (iii)) 9,500 5,000 ––––––– –––––––
Total equity and liabilities 98,800 45,000 ––––––– –––––––
The following information is relevant:
(i) At the date of acquisition, Pyramid conducted a fair value exercise on Square’s net assets which were equal to
their carrying amounts with the following exceptions:
– An item of plant had a fair value of $3 million above its carrying amount. At the date of acquisition it had
a remaining life of five years. Ignore deferred tax relating to this fair value.
– Square had an unrecorded deferred tax liability of $1 million, which was unchanged as at 31 March 2012.
Pyramid’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose a
share price for Square of $3·50 each is representative of the fair value of the shares held by the non-controlling
interest.
(ii) Immediately after the acquisition, Square issued $4 million of 11% loan notes, $2·5 million of which were
bought by Pyramid. All interest due on the loan notes as at 31 March 2012 has been paid and received.
2
(iii) Pyramid sells goods to Square at cost plus 50%. Below is a summary of the recorded activities for the year ended
31 March 2012 and balances as at 31 March 2012:
Pyramid Square
$’000 $’000
Sales to Square 16,000
Purchases from Pyramid 14,500
Included in Pyramid’s receivables 4,400
Included in Square’s payables 1,700
On 26 March 2012, Pyramid sold and despatched goods to Square, which Square did not record until they were
received on 2 April 2012. Square’s inventory was counted on 31 March 2012 and does not include any goods
purchased from Pyramid.
On 27 March 2012, Square remitted to Pyramid a cash payment which was not received by Pyramid until
4 April 2012. This payment accounted for the remaining difference on the current accounts.
(iv) Pyramid bought 1·5 million shares in Cube on 1 October 2011; this represents a holding of 30% of Cube’s
equity. At 31 March 2012, Cube’s retained profits had increased by $2 million over their value at 1 October
2011. Pyramid uses equity accounting in its consolidated financial statements for its investment in Cube.
(v) The other equity investments of Pyramid are carried at their fair values on 1 April 2011. At 31 March 2012,
these had increased to $2·8 million.
(vi) There were no impairment losses within the group during the year ended 31 March 2012.
Required:
Prepare the consolidated statement of financial position for Pyramid as at 31 March 2012.

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