QUESTION 5 (20 marks) Kyanite Ltd acquired 100 per cent interest in Selenite Ltd on 1 July 2020 for $1,750,000. All of the assets and liabilities are fairly stated at acquisition date. At the date of acquisition the equity of Emerald Lakes Ltd included the following; Share capital $1, 150,000 Retained earnings 350,000 $1,500,000 The reconciliation or retained earnings and statements of financial position of Kyanite Ltd and Selenite Ltd as at 30 June 2021 are as follows;Kyanite Selenite ($) Reconciliation of opening and closing retained earnings Sales revenue 1,250,000 750,000 Less Cost of goods sold 812,500 487,500 Gross Profit 437,500 262,500 Other revenue 125,000 Management fee revenue 57,500 Gain on sale of equipment 25,000 Less Expenses: Administration expenses 150,000 75,000 Management fees 57,500 Rent 150,000 55,000 Staff wages 75,000 35,000 Impairment loss Other expenses 45,000 5,000 Profit before tax 225,000 35,000 Tax expense 67,500 10,500 Profit for the year 157,500 24,500 Opening Retained earnings - 1 July 2020 1,150,000 350,000 1,307,500 374,500 Less dividends paid 140,000 75,000 Closing Retained earnings - 30 June 2021 1,167,500 299,500Statement of financial position Shareholders equity Retained earnings 1,167,500 299,500 Share Capital 3,223,000 1,150,000 4,390,500 1,449,500 Liabilities Accounts payable 950,000 375,000 Employee provisions 785,000 525,000 1,735,000 900,000 Assets Cash at bank 655,000 215,000 Accounts receivable 1,250,000 685,000 Prepayments 250,000 Inventory 775,000 695,000 Goodwill Accumulated impairment - goodwill Plant and equipment 1,250,000 950,000 Deferred tax asset Investment in Selenite Led 1,500,000 5,680,000 2,545,000Other information Selenite Ltd paid Kyanite Lid management fees of $57,500 on 30 April 2021. The management of Kyanite believe that goodwill acquired was impaired by 10% for the financial year 2021. . During the 2020 financial year Kyanite Ltd sells inventory to Selenite Ltd at a sale price of $125,000. . The inventory cost Kyanite Ltd $95,000 to produce. As at 30 June 2021 half of the inventory is still on hand with Selenite Ltd. . The tax rate is 30 per cent. Required: a) Prepare the consolidation entry to eliminate the investment in Selenite Ltd. (2 marks)c) Prepare the consolidated statement of financial position and consolidated statement of profit or loss as at 30 June 2021. Use the worksheet provided in preparation of the consolidated financial statements. (10 marks)