On 1 January 20X2, Viagem acquired 90% of the equity share capital of Greca in a share exchange in which Viagem issued two new shares for every three shares it acquired in Greca.  Additionally, on 31 December 20X2, Viagem will pay the shareholders of Greca $1.76 per share acquired.  Viagem's cost of capital is 10% per annum.

At the date of acquisition, shares in Viagem and Greca had a stock market value of $6.50 and $2.50 each respectively.

STATEMENTS OF PROFIT OR LOSS FOR THE YEAR ENDED 30 SEPTEMBER 20X2 

The following information is relevant:

1. At the date of acquisition, the fair values of Greca's assets were equal to their carrying amounts with the exception of two items:
   1. An item of plant had a fair value of $1.8 million above its carrying amount. The remaining life of the plant at the date of acquisition was three years. Depreciation is charged to cost of sales.
   2. Greca had a contingent liability which Viagem estimated to have a fair value of $450,000. This has not changed as at 30 September 20X2.

Greca has not incorporated these fair value changes into its financial statements.

2. Viagem's policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose, Greca's share price at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.
3. Sales from Viagem to Greca throughout the year ended 30 September 20X2 had consistently been $800,000  per month. Viagem made a mark-up on cost of 25% on these sales. Greca had $1.5 million of these goods in inventory as at 30 September 20X2.
4. Viagem's investment income is a dividend received from its investment in a 40% owned associate which it has held for several years. The underlying earnings for the associate for the year ended 30 September 20X2 were $2 million.
5. Although Greca has been profitable since its acquisition by Viagem, the market for Greca's products has been badly hit in recent months and Viagem has calculated that the goodwill has been impaired by $2 million as at 30 September 20X2.