On 1 July 2018, Ghostbusters Ltd acquired all the shares of Bat Ltd for $330 000 on an ex-div. basis. On this date, the equity and liabilities of Bat Ltd included the following balances:

 

Share capital $ 200 000
General reserve 25 000
Retained earnings 45 000
Dividend payable 10 000
Provisions 169 500

 

At acquisition date, all the identifiable assets and liabilities of Bat Ltd were recorded at amounts equal to fair value except for:

 

Carrying amount Fair value
Plant and equipment (cost $300 000) $186 000 $190 000
Trademark 100 000 110 000
Inventories 70 000 80 000
Land 50 000 70 000
Goodwill 25 000 55 000
Machinery (cost $18 000) 15 000 16 000

 

Goodwill was not impaired in any period. The plant and equipment had a further 5-year life at acquisition date and was expected to be used evenly over that time. The trademark was considered to have an indefinite life. The machinery, which was estimated to have a further 4-year life at acquisition date, was sold on 1 January 2020. Any adjustments for differences between carrying amounts at acquisition date and fair values are made on consolidation.

 

During the year ended 30 June 2019, all inventories on hand at acquisition date were sold, and the land was sold on 1 June 2020. Any valuation reserves created are transferred on consolidation to retained earnings when assets are sold or fully consumed.

 

Additional information

  • Of the interim dividend paid by Bat Ltd in the current year, $5000 was from profits before acquisition date. All other dividends were from current year profits. Shareholder approval is not required in relation to dividends.
  • On 1 July 2019, Bat Ltd has on hand inventory worth $12 000, being transferred from Ghostbusters Ltd in June 2019. The inventory had previously cost Ghostbusters Ltd $8000. On 31 March 2020, Bat Ltd transferred an item of plant with a carrying amount of $10 000 to Ghost Ltd for $15 000. Ghostbusters Ltd treated this item as inventory. The item was still on hand at the end of the year. Bat Ltd applied a 20% depreciation rate to this plant.
  • On 1 January 2020, Bat Ltd acquired $8000 inventory from Ghostbusters Ltd. This inventory originally cost Ghostbusters Ltd $5000. The profit in inventory on hand at 30 June 2020 was $1000.
  • During the year ending 30 June 2020, Bat Ltd sold inventory costing $12 000 to Ghostbusters Ltd for $18 000. Two-thirds of this was sold to external parties for $9000.
  • On 1 January 2019, Ghostbusters Ltd sold furniture to Bat Ltd for $8000. This had originally cost Ghostbusters Ltd $12 000 and had a carrying amount at the time of sale of $7000. Both entities charge depreciation at a rate of 10% p.a.
  • Ghostbusters Ltd sold some land to Bat Ltd in December 2019. The land had originally cost Ghostbusters Ltd $25 000, but was sold to Bat Ltd for only $20 000. To help Bat Ltd pay for the land, Ghostbusters Ltd gave Bat Ltd an interest-free loan of $12 000. Bat Ltd has as yet made no repayments on the loan.
  • The tax rate is 30%.

On 30 June 2020 the trial balances of Ghostbusters Ltd (Ghost) and Bat Ltd were as follows:

 

Ghost Ltd Bat Ltd
Debit balances    
Shares in Bat Ltd $325 000 —
Cash 7 800 $35 000
Receivables 6 000 20 000
Inventories 20 000 50 000
Deferred tax assets 10 200 —
Machinery 15 000 15 000
Plant and equipment 113 000 300 000
Land 25 000 50 000
Furniture 7 000 8 000
Trademark — 100 000
Goodwill — 25 000
Cost of sales 162 000 128 000
Other expenses 53 000 41 000
Income tax expense 20 000 18 000
Interim dividend paid 12 000 10 000
Final dividend declared 6 000 4 000
Loan to Bat Ltd 12 000 —
$794 000 $804 000
Credit balances
Share capital $312 000 $200 000
General reserve 20 000 25 000
Retained earnings (1/7/19) 30 000 45 000
Final dividend payable 6 000 4 000
Current tax liabilities 8 000 2 500
Provisions 78 000 169 500
Loan from Ghost Ltd — 12 000
Sales 220 000 182 000
Other income 62 000 20 000
Gains(losses) on sale of non-current assets 22 000 25 000
Accumulated depreciation – plant and equipment 34 000 114 000
Accumulated depreciation – machinery 1 000 3 000
Accumulated depreciation – furniture 1 000 2 000
$794 000 $804 000 

 

Required

  1. Prepare the consolidation journal / worksheet entries for Ghostbusters Ltd for 30/6/2020.
  2. Update and complete the consolidation worksheet for 30/6/2020. Use the worksheet provided below
Financial Statements Ghost

Ltd

 Bat

Ltd

 Adjustments Group
  Dr Cr    
Sales revenue 220 000 182 000    
Other income 62 000 20 000    
282 000 202 000    
Cost of sales 162 000 128 000    
Other expenses 53 000 41 000      
215 000 169 000    
Trading profit 67 000 33 000    
Gains/losses on sale of non-current assets 22 000 25 000    
Profit before tax 89 000 58 000    
Tax expense 20 000 18 000    
Profit 69 000 40 000    
Retained earnings

(1/7/19)

 30 000 45 000    
Transfer from BCV reserve 0 0    
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    
General reserve 20 000 25 000    
BCVR – –    
Total Equity 413 000 296 000    
Deferred tax liabilities – –    
Dividend payable 6 000 4 000    
Current tax liability 8 000 2 500    
Loan from Ghost Ltd – 12 000    
Provisions 78 000 169 500    
Total Liabilities 92 000 188 000    
Total Liabilities + Equity 505 000 484 000      
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