Ghostbusters Ltd & Bat Ltd: Consolidated Financial Statement Analysis

This assignment provides a comprehensive solution to a consolidation problem involving Ghostbusters Ltd's acquisition of Bat Ltd. It includes business combination valuation entries, pre-acquisition entries, and adjustments for inter-entity transactions such as sales of inventory, plant transfers, and sales of land. The solution details the adjustments required for preparing consolidated financial statements, including sales revenue, cost of sales, other expenses, and tax implications. The final consolidated financial statements include calculations for trading profit, profit before tax, profit, retained earnings, share capital, general reserve, BCVR, deferred tax liabilities, current tax liability, provisions, and loans, offering a complete picture of the consolidated entity's financial position and performance. This document illustrates the process of consolidating financial statements and addresses complex accounting issues related to business combinations and intercompany transactions.

Solution 1
At 1 July 2018:
Net fair value of Bat Ltd
=$200,000 + $25,000 + $45,000) (equity)
+ $4,000 (1 – 30%) (P&E)
+ $20,000 (1 –30%) (land)
+ $10,000 (1 – 30%) (inventory)
+ $10,000 (1 – 30%) (trademark)
+ $1,000 (1 – 30%) (machinery)
- $25 000 (goodwill)
Net fair value acquired = $276,500
Cost of combination = $330,000
Goodwill acquired = $28,500
1. Business combination valuation entries at 30 June 2020
Debit Credit
Gain (loss) on sale of non-current assets 20,000
Income tax expense 6,000
Transfer from business combination
valuation reserve 14,000
Trademark 10,000
Deferred tax liability 3,000
Business combination valuation reserve 7,000
Accumulated depreciation - P&E 114,000
Plant and equipment 110,000
Deferred tax liability 1,200
Business combination valuation reserve 2,800
Depreciation expense - P&E 800
Retained earnings (1/7/16) 800
Accumulated depreciation - P&E 1600
($4 000 /5)
Deferred tax liability 480
Income tax expense 240
Retained earnings (1/7/16) 240
Depreciation expense – machinery 125

Gain (loss) on sale of non-current assets 625
Income tax expense 225
Retained earnings (1/7/16) 175
Transfer from business combination
valuation reserve 700
2. Pre-acquisition entry 30/6/2018
Debit Credit
Retained earnings 45,000
Share capital 200,000
General reserve 25,000
Business combination valuation reserve 31,500
Goodwill 28,500
Shares in Bat Ltd 330,000
Pre-acquisition entry 30/6/2020
Debit Credit
Retained earnings* (1/7/19) 52,000
Share capital 200,000
General reserve 25,000
Business combination valuation reserve 24,500
Goodwill 28,500
Shares in Bat Ltd 330,000
* $45 000 + $7000 BCVR - Inventory
Transfer from business combination
valuation reserve 14,000
Business combination valuation reserve 14,000
Transfer from business combination
valuation reserve 700
Business combination valuation reserve 700
Shares in Bat Ltd 5,000
Interim dividend paid 5,000
3. Interim dividend paid
Debit Credit
Dividend revenue 5,000
Interim dividend paid 5,000
4. Final dividend declared
Debit Credit
Dividend payable 4,000

Final dividend declared 4,000
Dividend revenue 4,000
Dividend receivable 4,000
5. Inter-entity sales of inventory: Profit in opening inventory
Debit Credit
Retained earnings (1/7/19) 2,800
Income tax expense 1,200
Cost of sales 4,000
6. Transfer of plant to inventory: Ghost Ltd – Bat Ltd
Debit Credit
Gain (loss) on sale of non-current assets 5,000
Inventory 5,000
Deferred tax asset 1,500
Income tax expense 1,500
7. Intragroup sales of inventory: Profit in ending inventory
Debit Credit
Sales 8,000
Cost of sales 7,000
Inventory 1,000
Deferred tax asset 300
Income tax expense 300
8. Intragroup sales of inventory: Profit in ending inventory
Debit Credit
Sales 18,000
Cost of sales 16,000
Inventory 2,000
Deferred tax asset 600
Income tax expense 600
9. Sale of Furniture
Debit Credit
Retained earnings (1/7/19) 700
Deferred tax asset 300
Furniture 1,000
10. Depreciation
Accumulated depreciation - furniture 150
Depreciation expense 100
Retained earnings (1/7/19) 50
Income tax expense 30
Retained earnings (1/7/19) 15
Deferred tax asset 45

11. Sale of land: Ghostbusters Ltd to Bat Ltd
Debit Credit
Land 5,000
Gain (loss) on sale of non-current assets 5,000
Income tax expense 1,500
Deferred tax liability 1,500
Loan from Ghost Ltd 12,000
Loan to Bat Ltd 12,000
Solution 2
Financial
Statements
Ghost
Ltd
Bat
Ltd
Adjustments Group
Dr Cr
Sales revenue 220 000 182 000 7
8
8,000
18,000 376,000
Other income 62 000 20 000
3 4
5,000
4,000 73,000
282 000 202 000 449,000
Cost of sales 162 000 128 000 4,000
7,000
16,000
5
7
8 263,000
Other expenses 53 000 41 000 1 1
1 800,125 100 10 94,825
215 000 169 000 357,825
Trading profit 67 000 33 000 81,175
Gains/losses on
sale of non-current
assets
22 000 25 000 1
1
6
20,000
625
5,000 5,000 11 26,375
Profit before tax 89 000 58 000 117,550

Tax expense 20 000 18 000
5
10
11
1,200
30
1,500
6,000
240,225
1,500
300
600
1
1
1
6
7
8 31,865
Profit 69 000 40 000 85,685
Retained earnings
(1/7/19)
30 000 45 000 1
1
2
5
9
10
800
175
52,000
2,800
700
15
240
50
1
10 18,800
Transfer from
BCV reserve
0 0
2 14,700
14,000
700
1
1 -
99 000 85 000 104 485
Dividend paid 12 000 10 000 5,000
5,000
2
3 12,000
Dividend declared 6 000 4 000 4,000 4 6,000
18 000 14 000 18,000
Retained earnings
(30/6/20)
81 000 71 000 86,485
Share capital 312 000 200 000 2 200,000 312,000
General reserve 20 000 25 000 2 25,000 20,000
BCVR - -
2 9,800
7,000
2,800
1
1 -
Total Equity 413 000 296 000 418 485
Deferred tax
liabilities
- -
1 480
3,000
1,200
1,500
1
1
11 5 220
Dividend payable 6 000 4 000 4 4,000 6,000

Current tax
liability
8 000 2 500 10,500
Loan from Ghost
Ltd
- 12 000 11 12,000
Provisions 78 000 169 500 247,500
Total Liabilities 92 000 188 000 269,220
Total Liabilities +
Equity
505 000 484 000 687,705