Alpha had acquired 70% of the equity in Beta on 1 April 2009 when Beta’s retained earnings were £400. Both companies have drafted their Statement of income as shown.

You are informed as follows:

(a) During the current year Beta has sold goods for £500 to Alpha. Beta sells to Alpha at cost plus 25%.

(b) As at 31.12.2012 inventory held by Alpha includes goods invoiced to it by Beta at £800. In addition goods invoiced at £200 are in transit.

(c) 75% of interest expense of Beta was paid to Alpha.

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Statements of income year ended 31.12.2012 Sales revenue Cost of sales Gross profit Expenses Operating profit Dividend from Beta Interest income Interest paid Profit before tax Taxation Profit after tax Alpha £ 7,400 (4,500) 2,900 (1,800) 1,100 210 30 - 1,340 (480) 860 Beta £ 3,800 (2,100) 1,700 (900) 800 - (40) 760 (140) 620