On 1 July 2015 Gasol Ltd acquired 100% of the share capital (ex div.) of Payne Ltd for $450,000. At that date, the relevant balances in the records of Payne Ltd were:

$

Share capital

320 000

General reserve

20 000

Retained earnings

Dividend payable

80 000

10 000

At the date of acquisition all assets and liabilities of Payne Ltd were recorded in the accounting records at amounts equal to their fair values with the exception of the following assets:

Carrying amountFair value

$$

Inventory10 00014 000

Equipment47 00062 000

All inventory on hand at acquisition date was sold by 30 June 2016. The cost of the equipment was $75,000 and had a further five (5) year life as at the date of acquisition. Payne Ltd disclosed a contingent liability at the date of acquisition in relation to a claim by an employee for a salary dispute. Gasol Ltd estimated a fair value of $16,000 on the claim. This claim was settled in December 2018 for $9,000.

Additional information:

a)During the 2017-18 financial year, Gasol Ltd purchased inventory from Payne Ltd for $18,000. The cost of inventory to Payne Ltd was $13,000. Half of this inventory was sold by Gasol Ltd to external parties by 30 June 2018. The balance was sold to external parties in October 2018.

b)During the 2018-19 financial year, Gasol Ltd sold inventory to Payne Ltd for $28,000 at a mark-up of 40%. By 30 June 2019, Payne Ltd still held inventory that it had bought from Gasol Ltd for $8,400.

c)On 1 January 2017, Payne Ltd sold an item of machinery to Gasol Ltd for $40,000. The original cost of the equipment to Payne Ltd was $52,000 and had a carrying amount at the time of sale of $32,000. The machinery is considered to have a further five (5) year life as at 1 January 2017.

d)On 1 January 2019, Gasol Ltd acquired $50,000 of debentures previously issued by Payne Ltd. The debentures were acquired on the open market for $43,000. Interest on debentures is paid half-yearly. Outstanding interest has been paid by Payne Ltd on 30 June 2019.

e)All transfers from retained earnings to the general reserve by Payne Ltd were from post-acquisition earnings.

f)On realisation of the business combination valuation reserve, a transfer is made to retained earnings on consolidation.

g)The tax rate is 30%.

The financial statements of the two companies at 30 June 2019 are as follows:

Gasol

$

Payne

$

Revenues

850 000

550 000

Expenses

(660 000)

(420 000)

Net profit before tax

190 000

130 000

Income tax expense

(65 000)

(48 000)

Net profit after tax

125 000

82 000

Retained earnings 1 July 2018

160 000

120 000

285 000

202 000

Dividend paid

(42 000)

(18 000)

Transfer to general reserve

(16 000)

(12 000)

Retained earnings 30 June 2019

227 000

172 000

Share capital

500 000

320 000

General reserve

82 000

54 000

Accounts payable

45 000

20 000

6% debentures

-

90 000

Other liabilities

96 000

6 000

TOTAL EQUITY AND LIABILITIES

950 000

662 000

Cash

100 000

150 000

Accounts receivable

25 000

65 000

Prepayment

30 000

60 000

Inventory

65 000

90 000

Debentures in Payne Ltd

43 000

-

Investment in Payne Ltd

450 000

-

Non-current assets

237 000

297 000

TOTAL ASSETS

950 000

662 000

Required:

Prepare the consolidation journal entries for the Gasol Ltd group for the year ended 30 June 2019.