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Freddie The following question looks at disposal in the context of the i/s. On 1 January four years ago, Freddie acquired 80% of the shares of Mercury for $500,000. Mercury had share capital of $100,000 (nominal $1 each) and had reserves of $200,000. No shares have been issued since acquisition. At acquisition, the fair value of the net assets was $320,000. The fair value adjustment related to inventory, that was sold immediately after the acquisition. Goodwill has been tested for impairment at each year end since acquisition. No goodwill has been impaired since then. It is the group’s policy to value the non-controlling interest at fair value which at acquisition was $103,000. The income statements for the year ended 31 December in the current year are as follows: Freddie Group Mercury $’000 $’000 Revenue 900 240 Operating costs (500) (100) ___ ___ Operating profits 400 140 Dividend income 80 - Finance costs (20) (10) ___ ___ Profit before tax 460 130 Tax (110) (30) ___ ___ Profit after tax 350 100 ___ ___ Interim dividend paid 70 20 Opening retained earnings at the current year start 5,000 340 Freddie sold half of its holding in Mercury on 1 July in the current year. Freddie received cash proceeds of $430,000, but this has been recorded in a suspense account on the statement of financial position. The group accounts of Freddie group have been prepared and are presented above. However, the accounts of Mercury have not yet been consolidated because of the mid-year disposal. Freddie retains influence over Mercury via its remaining shareholding. The fair value of the associate retained is measured at $420,000 at disposal. Mercury paid the interim dividend in cash on 17 April in the current year prior to the disposal. Required: Prepare the consolidated income statement for the year ended 31 December.