CASE STUDY

Financial Information for Payton Limited and its 100% owned subsidiary, Ausstar Limited, for the period ended 31 December 2019 is shown in the table below:

Income Statement

Sales Revenue

500,000 Payton Limited

470,000 Ausstar Limited

Dividend Revenue

20,000 Payton Limited

-Ausstar Limited

Gain On Sale of Property, Plant and Equipment

2,500 Payton Limited

40,000 Ausstar Limited

Management fee income

5,000 Payton Limited

-Ausstar Limited

Total Income

527,500 Payton Limited

510,000 Ausstar Limited

Cost of Sales

315,000 Payton Limited

260,000 Ausstar Limited

Depreciation expense

10,000 Payton Limited

6,000 Ausstar Limited

Other Expenses (including management fees)

130,000 Payton Limited

120,000 Ausstar Limited

Total Expenses

455,000 Payton Limited

386,000 Ausstar Limited

Profit Before Income Tax

72,500 Payton Limited

124,000 Ausstar Limited

Income Tax Expense

21,000 Payton Limited

43,900 Ausstar Limited

Profit for the Period

51,500 Payton Limited

80,100 Ausstar Limited

Statement of Financial Position (simplified)

Assets

Investment in Subsidiary

125,000 Payton Limited

-Ausstar Limited

Debtors

15,000 Payton Limited

-Ausstar Limited

Land

92,000 Ausstar Limited

Machinery

120,000 Payton Limited

Inventories

-Payton Limited

25,000 Ausstar Limited

Financial assets

70,000 Payton Limited

63,000 Ausstar Limited

Deferred Tax Asset

-Payton Limited

-Ausstar Limited

All other assets

150,000 Payton Limited

55,000 Ausstar Limited

TOTAL ASSETS

480,000 Payton Limited

235,000 Ausstar Limited

Liabilities

Creditors

25,000 Payton Limited

19,900 Ausstar Limited

DTL

-Payton Limited

-Ausstar Limited

All other liabilities

78,500 Payton Limited

100,000 Ausstar Limited

TOTAL LIABILITIES

103,500 Payton Limited

119,900 Ausstar Limited

NET ASSETS

376,500 Payton Limited

115,100 Ausstar Limited

Equity -

Share capital

225,000 Payton Limited

40,000 Ausstar Limited

Retained earnings at start of the year

100,000 Payton Limited

15,000 Ausstar Limited

Profit for the year

51,500 Payton Limited

80,100 Ausstar Limited

Interim dividend paid

-Payton Limited

-20,000 Ausstar Limited

TOTAL EQUITY

376,500 Payton Limited

115,100 Ausstar Limited

Requirement

1.Assuming that Payton Limited is required to make a consolidated financial report, prepare the journal that the Parent entity would have posted in its own ledger to record the acquisition on 1 January 2019.

2.Prepare the journal to eliminate the investment in subsidiary at 31 December 2019.

3.Prepare the consolidation worksheet journal entries to eliminate the effects of intragroup transactions at 31 December 2019.