Highland plc owns two subsidiaries acquired as follows:

1 July 1991

80% of Aviemore Ltd for £5 million when the book value of the net

assets of Aviemore Ltd was £4 million.

30 November 1997

65% of Buchan Ltd for £2 million when the book value of the net

assets of Buchan Ltd was £1.35 million.

The companies’ profit and loss accounts for the year ended 31 March 1998 were:

Highland

Aviemore

Buchan

plc

Ltd

Ltd

£000

£000

£000

Sales

5000

3000

2910

Cost of sales

(3000)

(2300)

(2820)

Gross profit

2000

700

90

Net operating expenses

(1000)

(500)

(150)

Other income

230

Interest payable and similar charges

(50)

(210)

Profit/(loss) before taxation

1230

150

(270)

Taxation

(300)

(50)

Profit/(loss) after taxation

930

100

(270)

Dividends proposed

(200)

(50)

730

50

(270)

Additional information

(1) On 1 April 1997, Buchan Ltd issued £2.1 million 10% loan stock to Highland plc. Interest is payable twice yearly on 1 October and 1 April. Highland plc has accounted for the interest received on 1 October 1997 only.

(2) On 1 July 1997, Aviemore Ltd sold a freehold property to Highland plc for £800 000 (land element – £300 000). The property originally cost £900 000 (land element – £100 000) on 1 July 1987. The property’s total useful economic life was 50 years on 1 July 1987 and there has been no change in the useful economic life since. Aviemore Ltd has credited the profit on disposal to ‘Net operating expenses’.

(3) The fixed assets of Buchan Ltd on 30 November 1997 were valued at £500 000 (book value £350 000) and were acquired in April 1997. The fixed assets have a total useful economic life of ten years. Buchan Ltd has not adjusted its accounting records to reflect fair values.

(4) All companies use the straight line method of depreciation and charge a full year’s depreciation in the year of acquisition and none in the year of disposal.

(5) Highland plc charges Aviemore Ltd an annual fee of £85 000 for management services and this has been included in ‘Other income’.

(6) Highland plc has accounted for its dividend receivable from Aviemore Ltd in ‘Other income’.

(7) It is group policy to amortise goodwill arising on acquisitions over ten years. Requirement

Prepare the consolidated profit and loss account for Highland plc for the year ended 31 March 1998.