Financial Consolidation and Analysis: Ghostbusters Ltd. Assignment

This assignment provides a comprehensive solution to a financial consolidation problem involving Ghostbusters Ltd. and its acquisition of Bat Ltd. It begins with an acquisition analysis, detailing the fair value adjustments for various assets and liabilities. The solution then presents business combination valuation entries, pre-acquisition entries, and other necessary consolidation entries to eliminate intercompany transactions and adjust for fair value differences. A consolidated worksheet is provided, summarizing the financial data for both companies and showing the adjustments needed to prepare the consolidated financial statements. The assignment covers key aspects such as goodwill calculations, depreciation adjustments, intercompany profit eliminations, and tax implications. The final section presents the consolidated financial statements, including the income statement and balance sheet, demonstrating the combined financial performance and position of Ghostbusters Ltd. and its subsidiary.

Consolidation of financials is a lengthy process, which involves few steps. The steps and consolidation of
Ghostbusters Ltd. is as below:
Step-1 Preparation of Acquisition Analysis as on 1 July, 2018
Descriptions Amount
Share capital $ 200,000
General reserve $ 25,000
Retained earnings $ 45,000
Fair value:- Plant and equipment ((190000-186000)*(1-30%)) $ 2,800
Fair value:- Trademark ((110000-100000)*(1-30%)) $ 7,000
Fair value:- Inventories ((80000-70000)*(1-30%)) $ 7,000
Fair value:- Land ((70000-50000)*(1-30%)) $ 14,000
Fair value:- Machinery ((16000-15000)*(1-30%)) $ 700 $ 31,500
Fair value of net assets acquired $ 301,500
Less: Goodwill already recorded $ (25,000)
$ 276,500
Cost of Investment $ 305,000
Goodwill to be recorded $ 28,500
Step-2 Business combination valuation entries at 30 June 2020
Description Amount
Gain (loss) on sale of non-current assets $ 20,000
To Income tax expense $ (6,000)
To Transfer from BCVR $ (14,000)
(Being sale of fair valued land recorded)
Trademark $ 10,000
To Deferred tax liability $ (3,000)
To BCVR $ (7,000)
(Being fair valuation of trademark recorded)
Accumulated depreciation - P&E $ 114,000
To Plant and equipment $ (110,000)
To Deferred tax liability $ (1,200)
To BCVR $ (2,800)
(Being fair valuation of Plant recorded)
Depreciation expense - P&E $ 800
Retained earnings (1/7/19) $ 800
To Accumulated depreciation - P&E ($4 000/5) $ (1,600)
(Being depreciation on above plabt fair valuation recorded)
Deferred tax liability $ 480
To Income tax expense $ (240)

To Retained earnings (1/7/19) $ (240)
(Being tax impact on above entry recorded)
Depreciation expense – machinery $ 125
Gain (loss) on sale of non-current assets $ 625
Retained earnings (1/7/19) $ 175
To Income tax expense $ (225)
To Transfer from BCVR $ (700)
(Being sale of fair valued machinery recorded)
Step-3 Pre- acquisition entries at 30 June 2020
Description Amount
Share capital $ 200,000
General reserve $ 25,000
Retained earnings (1/7/19) ($45,000+$7000) $ 52,000
BCVR $ 24,500
Goodwill $ 28,500
To Shares in Bat Ltd $ (330,000)
(Being pre acquisition entry as on 30/6/20 recorded)
Transfer from BCVR $ 14,000
To BCVR $ (14,000)
(Being transfer of amount on sale of land recorded)
Transfer from BCVR $ 700
To BCVR $ (700)
(Being transfer of amount on sale of machinery recorded)
Shares in Bat Ltd $ 5,000
To Interim dividend paid $ (5,000)
(Being interim dividend received)
Step-4 Other consolidation entries at 30 June 2020
Sr. No. Description Amount
3 Dividend revenue $ 5,000
To Interim dividend paid $ (5,000)
(Being interim dividend paid)
4 Dividend payable $ 4,000
To Final dividend declared $ (4,000)
(To eliminate the dividend paid and payable)

Dividend revenue $ 4,000
To Dividend receivable $ (4,000)
(To eliminate the dividend revenue and receivable)
5 Retained earnings (1/7/19) $ 2,800
Income tax expense $ 1,200
To Cost of sales $ (4,000)
(Being elimination of profit from opening inventory recorded)
6 Gain (loss) on sale of non-current assets $ 5,000
To Inventory $ (5,000)
(Being intercompany transfer of plant treated as inventory recorded)
Deferred tax asset $ 1,500
To Income tax expense $ (1,500)
(Being tax impact on above recorded)
7 Sales $ 8,000
To Cost of sales $ (7,000)
To Inventory $ (1,000)
(Being elimination of profit in ending inventory recorded)
Deferred tax asset $ 300
To Income tax expense $ (300)
(Being tax impact on above recorded)
8 Sales $ 18,000
To Cost of sales $ (16,000)
To Inventory $ (2,000)
(Being elimination of intercompany sale of inventory recorded)
Deferred tax asset $ 600
To Income tax expense $ (600)
(Being tax impact on above recorded)
9 Retained earnings (1/7/19) $ 700
Deferred tax asset $ 300
To Furniture $ (1,000)
(Being elimination of profit in sale of furniture recorded)
10 Accumulated depreciation - furniture $ 150
To Depreciation expense $ (100)
To Retained earnings (1/7/19) $ (50)
(Being depreciation on above profit elimination recorded)

Income tax expense $ 30
Retained earnings (1/7/19) $ 15
To Deferred tax asset $ (45)
(Being tax impact of above transaction recorded)
11 Land $ 5,000
To Gain (loss) on sale of non-current assets $ (5,000)
(Being elimination of profit from intercompany sale of land
recorded)
Income tax expense $ 1,500
To Deferred tax liability $ (1,500)
(Being tax impact of above transaction recorded)
Loan from Ghostbusters Ltd $ 12,000
To Loan to Bat Ltd $ (12,000)
(Being elimination of intercompany loan transaction recorded)
Step-5 Consolidated Worksheet
Income Statement Ghost Ltd Bat Ltd No. Adjustments No. Group
Dr Cr
Sales revenue $ 220,000 $ 182,000 7, 8 $ 26,000 $ 376,000
Other income $ 62,000 $ 20,000 3,4 $ 9,000 $ 73,000
$ 282,000 $ 202,000 $ 449,000
Cost of sales $ 162,000 $ 128,000 $ 27,000 5,7,8 $ 263,000
Other expenses $ 53,000 $ 41,000 1 $ 925 $ 100 10 $ 94,825
$ 215,000 $ 169,000 $ 357,825
Trading profit $ 67,000 $ 33,000 $ 91,175
Gains/losses on sale of non-
current assets $ 22,000 $ 25,000 1,6 $ 25,625 $ 5,000 11 $ 26,375
Profit before tax $ 89,000 $ 58,000 $ 117,550
Tax expense $ 20,000 $ 18,000 5, 10, 11 $ 2,730 $ 8,865 1,6,7,
8 $ 31,865
Profit $ 69,000 $ 40,000 $ 85,685
$ 30,000 $ 45,000 1,2,5,9,1
0 $ 56,490 $ 290 1,10 $ 18,800
Retained earnings (1/7/19) $ - $ - 2 $ 14,700 $ 14,700 1 $ -
$ 99,000 $ 85,000 $ 104,485
Dividend paid $ 12,000 $ 10,000 $ 10,000 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 $ 9,800 1 $ -
Total Equity $ 413,000 $ 296,000 $ 418,485
Deferred tax liabilities $ - $ - 1 $ 480 $ 5,700 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
Assets
Shares in Bat Ltd $ 325,000 $ 325,000 2 $ -
Cash $ 7,800 $ 35,000 $ 42,800
Inventory $ 20,000 $ 50,000 $ 8,000 6,7,8 $ 62,000
Receivables $ 6,000 $ 20,000 $ 4,000 4 $ 22,000
Land $ 25,000 $ 50,000 11 $ 5,000 $ 80,000
Plant & equipment $ 113,000 $ 300,000 $ 110,000 1 $ 303,000
Accumulated depreciation – P
& E $ (34,000) $ (114,000) 1 $ 114,000 $ 1,600 1 $ (35,600)
Machinery $ 15,000 $ 15,000 $ 30,000
Accumulated depreciation –
Mach. $ (1,000) $ (3,000) $ (4,000)
Furniture $ 7,000 $ 8,000 $ 1,000 9 $ 14,000
Accumulated depreciation –
Furn. $ (1,000) $ (2,000) 10 $ 150 $ (2,850)
Trademark $ 100,000 1 $ 10,000 $ 110,000
Goodwill $ 25,000 2 $ 28,500 $ 53,500
Deferred tax assets $ 10,200 6,7,8,9 $ 2,700 $ 45 10 $ 12,855
Loan to Bat Ltd $ 12,000 $ 12,000 11 $ -
Total assets $ 505,000 $ 484,000 $ 687,705