ONE Pearson Ltd has purchased 70% of the ordinary shares and 50% of the loan stock of Smearson Ltd on 1 January 2016 when the retained earnings of Smearson Ltd stood at K55, 000: S Pearson Ltd Smearson Ltd K' K' Assets Non-current assets 700,000 420,000 Property, plant and equipment Equity investments of K1 each 400,000 15% loan stock 70,000 1, 170,000 420, 000 Current assets Inventories 50,000. 100,000 Trade receivables 145,000 195,000 Receivable from Smearson Ltd 80,000 Cash and cash equivalents 60,000 102.000 335.000 397,000 1.505.000 817.000 Equity and liabilities Equity Ordinary shares of K1 each 900,000 500,000 Retained earnings 330.000 157.000 1,230,000 657,000 Non-current liabilities 10% loan stock 225,000 15% loan stock 100, 000 Current liabilities Trade payables 50,000 Payable to Pearson Ltd 60.000 275,000 160,000 1.505.000 817,000 Additional Information 1. Smearson bought K65, 000 worth of goods from Pearson. These goods were sold to Smearson at a margin of 20%. 30% of these goods were still in the inventory of Smearson at the year end. 2. Pearson bought equipment from Smearson for K30, 000. The carrying amount of the equipment at the time of sale was K20, 000 and it had 4 years of useful life remaining.