The following financial statements of EMU Ltd and its subsidiary Cassowary Ltd have been extracted from their financial records at 30 June 2019.

 

  EMU Ltd ($) Cassowary Ltd ($)
Detailed reconciliation of opening and closing retained earnings    
Sales revenue 1 725 000 1 450 000
Cost of goods sold (1 160 000) (595 000)
Gross profit 565 000 855 000
Dividend revenue—from Cassowary Ltd 186 000  
Management fee revenue 66 250  
Profit on sale of plant 87 500  
Expenses:    
Administrative expenses (77 000) (96 750)
Depreciation (61 250) (142 000)
Management fee expense   (66 250)
Other expenses (252 750) (192 500)
Profit before tax 513 750 357 500
Tax expense 153 750 105 500
Profit for the year 360 000 252 000
Retained earnings—1 July 2018 798 500 598 000
  1 158 500 850 000
Dividends paid (343 500) (232 500)
Retained earnings—30 June 2019 815 000 617 500
Statement of financial position    
Shareholders’ equity:    
Retained earnings 815 000 617 500
Share capital 875 000 500 000
Current liabilities:    
Accounts payable 136 750 115 750
Tax payable 103 250 62 500
Non-current liabilities:    
Loans 433 750 290 000
  2 363 750 1 585 750
Current assets:    
Accounts Receivable 148 500 155 750
Inventory 230 000   72 500
Non-current assets:    
Land and buildings 560 000 815 000
Plant at cost 749 625 889 500
Accumulated depreciation (214 375) (347 000)
Investment in Cassowary Ltd 890 000  
  2 363 750 1 585 750

 

Additional information:

  • EMU Ltd had acquired its 80 per cent interest in Cassowary Ltd on 1 July 2010, that is, nine years earlier. At that date the capital and reserves of Cassowary Ltd were:

Share capital                                                     $500 000

Retained earnings                                             $425 000

Total                                                                  $925 000

At the date of acquisition all assets were considered to be fairly valued.

  • The management of EMU Ltd measures any non-controlling interest at the proportionate share of Cassowary Ltd’s identifiable net assets.
  • During the year, EMU Ltd made total sales to Cassowary Ltd of $162 500, while Cassowary Ltd sold $130 000 in inventory to EMU Ltd.
  • The opening inventory in EMU Ltd as at 1 July 2018 included inventory acquired from Cassowary Ltd of $105 000 that had cost Cassowary Ltd $87 500 to produce.
  • The closing inventory in EMU Ltd includes inventory acquired from Cassowary Ltd at a cost of $84 000. This had cost Cassowary Ltd $70 000 to produce.
  • The closing inventory of Cassowary Ltd includes inventory acquired from EMU Ltd at a cost of $30 000. This had cost EMU Ltd $24 000 to produce.
  • The management of EMU Ltd believe that goodwill acquired was impaired by $7500 in the current financial year. Previous impairments of goodwill amounted to $56 250.
  • On 1 July 2018 EMU Ltd sold an item of plant to Cassowary Ltd for $290 000 when its carrying value in EMU Ltd’s accounts was $202 500 (cost of $337 500, accumulated depreciation of $135 000). This plant is assessed as having a remaining useful life of six years.
  • Cassowary Ltd paid $66 250 in management fees to EMU Ltd.
  • The tax rate is 30 per cent.

 

REQUIRED:

  1. Calculate goodwill on acquisition.
  2. Prepare all consolidation journal entries including non-controlling interest.
  3. Prepare consolidation worksheet.
  4. Prepare consolidated statement of profit and loss and other comprehensive income of EMU ltd and its subsidiary for the year ended 30 June 2019.
  5. Prepare consolidated statement financial position of EMU Ltd and its subsidiaries as at 30 June 2019.
  6. Prepare EMU Ltd and its controlled entity Consolidated statement of changes in equity for the year ended 30 June 2019.
  7. Prepare EMU Ltd Statement of changes in equity for the year ended 30 June 2019.
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