Question $4(25$ Marks$)$ Case Study Question On January $1,20$X$5,$ Zenith Ltd acquired $80\%$ of the equity shares of Nova Ltd for $$500,000.$ At the date of acquisition, Nova Ltd$$s retained earnings were $$150,000.$ Goodwill is to be calculated using the full goodwill method, with the fair value of the non$-$controlling interest $($NCI$)$ at acquisition being $$130,000.$ Zenith Ltd also holds $$300,000$ of $6\%$ convertible loan notes issued by Nova Ltd$,$ acquired on the same date. The notes are convertible into ordinary shares after three years. A similar non$-$convertible debt instrument would require an $8\%$ return. Interest is paid annually. The group$$s net profit after tax for the year ended December $31,20$X$5,$ was $$720,000,$ and included interest income earned by Zenith Ltd on the convertible loan notes. Zenith Ltd had $600,000$ ordinary shares in issue throughout the year. No share transactions occurred during the year. Additional Information: At year$-$end, Nova Ltd had inventories sold to Zenith Ltd at a profit of $$20,000.$ Half of these goods remained in Zenith Ltd$$s inventory as at December $31,20$X$5.$ The fair value of Nova Ltd$$s net assets at acquisition was equal to their carrying amounts, except for plant which had a fair value $$40,000$ higher. The plant had a remaining useful life of $4$ years. Required: a$.$ Calculate the goodwill on acquisition using the full goodwill method $(5$ Marks$)$ b$.$ Compute the consolidated retained earnings as at December $31,20$X$5(8$ Marks$)$ c$.$ Prepare a high$-$level calculation of consolidated EPS for the year ended December $31,20$X$5,$ adjusting for: Intragroup interest income Unrealised profit in inventory Non$-$controlling interest share of profit d$.$ Briefly discuss the classification of the convertible loan notes in Zenith Ltd$$s consolidated financial statements and the implications for group ratios $($e$.$g$.$ gearing, EPS$).(5$ Marks$)$