Consolidation Journal Entries and Worksheet for Acquisition Analysis

This assignment focuses on the financial analysis of an acquisition, specifically addressing the consolidation of Ghostbusters Ltd. The solution provides detailed consolidation journal entries and a worksheet for the year ended June 30, 2020. The analysis begins with the fair value of assets and liabilities at the acquisition date (July 1, 2018) and calculates the goodwill. The assignment includes a comprehensive set of journal entries covering various aspects of the consolidation process, such as BCVR entries, depreciation, deferred tax implications, and pre-acquisition entries. It also addresses the elimination of intercompany profits from inventory and sales, intercompany loans, and dividend transactions. The final part of the solution presents the consolidated financial statements, including the income statement and balance sheet, which are prepared by adjusting and combining the financial data of the acquiring and acquired companies. This structured approach offers students a practical understanding of financial accounting and consolidation procedures.

Acquisition Analysis as on 1 July, 2018
Particulars Amount
Share capital $ 200,000
General reserve $ 25,000
Retained earnings $ 45,000
Fair value:
- Plant and equipment $ 2,800
- Trademark $ 7,000
- Inventories $ 7,000
- Land $14,000
- Machinery $ 700 $ 31,500
Less: Goodwill $ (25,000)
Net fair value of identifiable assets and
liabilities $ 276,500
Consideration paid $ 305,000
Unrecorded goodwill $ 28,500
1. Consolidation journal / worksheet entries for Ghostbusters Ltd for 30/6/2020
Sr. No. Particulars Dr./Cr. Amount
1 BCVR entries
Gain (loss) on sale of non-current assets Dr $ 20,000
Income tax expense Cr $ 6,000
Transfer from business combination valuation reserve Cr $ 14,000
Trademark Dr $ 10,000
Deferred tax liability Cr $ 3,000
Business combination valuation reserve Cr $ 7,000
Accumulated depreciation - P&E Dr $ 114,000
Plant and equipment Cr $ 110,000
Deferred tax liability Cr $ 1,200
Business combination valuation reserve Cr $ 2,800
Depreciation expense - P&E Dr $ 800
Retained earnings (1/7/19) Dr $ 800
Accumulated depreciation - P&E ($4 000/5) Cr $ 1,600
Deferred tax liability Dr $ 480
Income tax expense Cr $ 240
Retained earnings (1/7/19) Cr $ 240
Depreciation expense – machinery Dr $ 125
Gain (loss) on sale of non-current assets Dr $ 625
Retained earnings (1/7/19) Dr $ 175
Income tax expense Cr $ 225

Transfer from business combination valuation reserve Cr $ 700
2 Pre-acquisition entry 1/7/18
Retained earnings Dr $ 45,000
Share capital Dr $ 200,000
General reserve Dr $ 25,000
Business combination valuation reserve Dr $ 31,500
Goodwill Dr $ 28,500
Shares in Bat Ltd Cr $ 330,000
Pre-acquisition entry 30/6/20
Retained earnings (1/7/19) Dr $ 52,000
Share capital Dr $ 200,000
General reserve Dr $ 25,000
Business combination valuation reserve Dr $ 24,500
Goodwill Dr $ 28,500
Shares in Bat Ltd Cr $ 330,000
Transfer from business combination valuation reserve Dr $ 14,000
Business combination valuation reserve Cr $ 14,000
(To record transfer of amount on sale of land)
Transfer from business combination valuation reserve Dr $ 700
Business combination valuation reserve Cr $ 700
(To record transfer of amount on sale of machinery)
Shares in Bat Ltd Dr $ 5,000
Interim dividend paid Cr $ 5,000
(To record interim dividend received)
Other entries
3 Interim dividend paid
Dividend revenue Dr $ 5,000
Interim dividend paid Cr $ 5,000
4 Final dividend declared
Dividend payable Dr $ 4,000
Final dividend declared Cr $ 4,000
Dividend revenue Dr $ 4,000
Dividend receivable Cr $ 4,000
5 Elimination of profit from opening inventory
Retained earnings (1/7/19) Dr $ 2,800
Income tax expense Dr $ 1,200
Cost of sales Cr $ 4,000
6 Intercompany transfer of plant

Gain (loss) on sale of non-current assets Dr $ 5,000
Inventory Cr $ 5,000
Deferred tax asset Dr $ 1,500
Income tax expense Cr $ 1,500
7 Elimination of profit from closing inventory
Sales Dr $ 8,000
Cost of sales Cr $ 7,000
Inventory Cr $ 1,000
Deferred tax asset Dr $ 300
Income tax expense Cr $ 300
8 Elimination of intercompany sale of inventory
Sales Dr $ 18,000
Cost of sales Cr $ 16,000
Inventory Cr $ 2,000
Deferred tax asset Dr $ 600
Income tax expense Cr $ 600
9 Elimination of profit in sale of furniture
Retained earnings (1/7/19) Dr $ 700
Deferred tax asset Dr $ 300
Furniture Cr $ 1,000
10 Depreciation on above elimination
Accumulated depreciation - furniture Dr $ 150
Depreciation expense Cr $ 100
Retained earnings (1/7/19) Cr $ 50
Income tax expense Dr $ 30
Retained earnings (1/7/19) Dr $ 15
Deferred tax asset Cr $ 45
11 Elimination of profit from intercompany sale of land
Land Dr $ 5,000
Gain (loss) on sale of non-current assets Cr $ 5,000
Income tax expense Dr $ 1,500
Deferred tax liability Cr $ 1,500
Elimination of intercompany loan
Loan from Ghost Ltd Dr $ 12,000
Loan to Bat Ltd Cr $ 12,000

2. Worksheet
Ghostbusters Ltd.
Financial Statements
Income Statement Ghost Ltd Bat Ltd No. Adjustment
Dr
Sales revenue $ 220,000 $ 182,000 7, 8 $ 26,000
Other income $ 62,000 $ 20,000 3,4 $ 9,000
$ 282,000 $ 202,000
Cost of sales $ 162,000 $ 128,000 $
Other expenses $ 53,000 $ 41,000 1 $ 925 $
$ 215,000 $ 169,000
Trading profit $ 67,000 $ 33,000
Gains/losses on sale of non-current assets $ 22,000 $ 25,000 1,6 $ 25,625 $
Profit before tax $ 89,000 $ 58,000
Tax expense $ 20,000 $ 18,000 5, 10, 11 $ 2,730 $
Profit $ 69,000 $ 40,000
$ 30,000 $ 45,000 1,2,5,9,10 $ 56,490 $
Retained earnings (1/7/19) $ - $ - 2 $ 14,700 $
$ 99,000 $ 85,000
Dividend paid $ 12,000 $ 10,000 $
Dividend declared $ 6,000 $ 4,000 $
$ 18,000 $ 14,000
Retained earnings (30/6/20) $ 81,000 $ 71,000
Share capital $ 312,000 $ 200,000 2 $ 200,000
General reserve $ 20,000 $ 25,000 2 $ 25,000
BCVR $ - $ - 2 $ 9,800 $
Total Equity $ 413,000 $ 296,000
Deferred tax liabilities $ - $ - 1 $ 480 $
Dividend payable $ 6,000 $ 4,000 4 $ 4,000
Current tax liability $ 8,000 $ 2,500
Loan from Ghost Ltd $ - $ 12,000 11 $ 12,000
Provisions $ 78,000 $ 169,500
Total Liabilities $ 92,000 $ 188,000
Total Liabilities + Equity $ 505,000 $ 484,000
Assets
Shares in Bat Ltd $ 325,000 $
Cash $ 7,800 $ 35,000
Inventory $ 20,000 $ 50,000 $

Receivables $ 6,000 $ 20,000 $
Land $ 25,000 $ 50,000 11 $ 5,000
Plant & equipment $ 113,000 $ 300,000 $
Accumulated depreciation – P & E $ (34,000) $ (114,000) 1 $ 114,000 $
Machinery $ 15,000 $ 15,000
Accumulated depreciation – Mach. $ (1,000) $ (3,000)
Furniture $ 7,000 $ 8,000 $
Accumulated depreciation – Furn. $ (1,000) $ (2,000) 10 $ 150
Trademark $ 100,000 1 $ 10,000
Goodwill $ 25,000 2 $ 28,500
Deferred tax assets $ 10,200 6,7,8,9 $ 2,700 $
Loan to Bat Ltd $ 12,000 $
Total assets $ 505,000 $ 484,000