Question 19.

14 Consolidation worksheet entries

On 1 July 2015, Zack Ltd acquired all the issued shares (ex div.) of William Ltd for $227 500. At
this date the equity of William Ltd consisted of:

Share capital $ 150 000

General reserve 34 000
Retained earnings 20 000

At acquisition date, William Ltd reported a dividend payable of $8000. All the identifiable
assets and liabilities of William Ltd were recorded at amounts equal to their fair values except
for:

Carrying amount Fair value

Plant (cost $200 000) $175 000 $190 000
Land 150 000 155 000
Inventory 32 000 40 000

The plant was considered to have a further 3-year life. Of the inventory, 90% was sold by
30 June 2016 and the remainder was sold by 30 June 2017. The land was sold in January 2016
for $170 000. William Ltd had recorded goodwill of $2000 (net of accumulated impairment
losses of $12 000).William Ltd was involved in a court case that could potentially result in the
company paying damages to customers. Zack Ltd calculated the fair value of this liability to be
$8000, even though William Ltd had not recorded any liability.
The following events occurred in the year ending 30 June 2016.
• On 12 August 2015 William Ltd paid the dividend that existed at 1 July 2015.
• On 1 December 2015 William Ltd transferred $17 000 from the general reserve existing at
1 July 2015 to retained earnings.
• On 1 January 2016 William Ltd made a call of 10c per share on its issued shares. William
Ltd had 100 000 shares on issue. All call money was received by 31 January 2016.
• On 29 June 2016 William Ltd reassessed the liability in relation to the court case as the
chances of winning the case had improved. The fair value was now considered to be $2000.

Required
Prepare the consolidation worksheet entries for the preparation by Zack Ltd of its consolidated
financial statements at 30 June 2016.

Acquisition analysis at 1 July 2015:

Net fair value of identifiable assets

and liabilities of William Ltd = ($150 000 + $34 000 + $20 000) (equity)
+ $8 000 (1 – 30%) (inventory)
+ $15 000 (1 – 30%) (plant)
+ $5 000 (1 – 30%) (land)
- $8 000 (1 – 30%) (provision for damages)
- $2 000 (goodwill)
= $216 000
Consideration transferred = $227 500
Goodwill = $11 500
Goodwill recorded = $2 000
Unrecorded goodwill = $9 500
Worksheet entries at 30 June 2016

1. Business combination valuation entries

Accumulated depreciation – plant Dr 25 000
Plant Cr 10 000
Deferred tax liability Cr 4 500
Business combination valuation reserve Cr 10 500

Depreciation expense Dr 5 000

Accumulated depreciation Cr 5 000
(1/3 x $15 000)

Deferred tax liability Dr 1 500

Income tax expense Cr 1 500

Land Dr 5 000
Deferred tax liability Cr 1 500
Business combination valuation reserve Cr 3 500
Inventory Dr 800
Deferred tax liability Cr 240
Business combination valuation reserve Cr 560

Cost of sales Dr 7 200

Income tax expense Cr 2 160
Transfer from business combination
valuation reserve Cr 5 040

Accumulated impairment losses Dr 12 000

Goodwill Cr 2 500
Business combination valuation reserve Cr 9 500

Business combination valuation reserve Dr 1 400

Deferred tax asset Dr 600
Provision for damages Cr 2 000

Transfer from business combination valuation

reserve Dr 4 200
Income tax expense Dr 1 800
Gain Cr 6 000

2. Pre-acquisition entries

At 1/7/15:

Retained earnings (1/7/15) Dr 20 000

Share capital Dr 150 000
General reserve Dr 34 000
Business combination valuation reserve Dr 23 500
Shares in William Ltd Cr 227 500

The entry at 30/06/2016 is affected by:

- 90% of inventory sold, 10% on hand
- re-measurement of liability from $8000 to $2000
- $17 000 transfer from pre-acquisition general reserve
- call of 10c per share on 100 000 shares
‘ Transfer from business combination
valuation reserve Dr 5 040
Business combination valuation reserve Cr 5 040
(Sale of inventory)

Business combination valuation reserve Dr 4 200

Transfer from business combination
valuation reserve Cr 4 200
(Re-measurement of liability)

Transfer from general reserve Dr 17 000

General reserve Cr 17 000

Share capital Dr 10 000

Shares in William Ltd Cr 10 000
Question 19.15 Consolidation worksheet entries
Ron Ltd operates a number of supermarkets with an emphasis on the supply of quality produce.
The operations of Sam Ltd are primarily in the fine fruit market. Believing that the acquisition
of Sam Ltd would enable Ron Ltd to expand its supply of quality produce to its customers, Ron
Ltd commenced actions to acquire the shares of Sam Ltd. On 1 July 2013, Ron Ltd acquired all
the issued shares (cum div.) of Sam Ltd for $123 500. At this date the equity of Sam Ltd
consisted of:

Share capital $100 000

Reserves 5 000
Retained earnings 10 000

On 1 July 2013, Sam Ltd had recorded a dividend payable of $6000 and goodwill of $5000
(net of accumulated impairment losses of $7000). The dividend was paid in August 2013. In the
previous year’s annual report Sam Ltd had reported the existence of a contingent liability for
damages based upon a lawsuit by a customer who had slipped on some fallen fruit in one of the
stores operated by Sam Ltd. Ron Ltd calculated that this liability had a fair value of $10 000.
Sam Ltd also had some customer databases that were not recorded as assets but Ron Ltd placed
affair value of $6000 on these items. Sam Ltd believed that the databases had a future life of
4 years.
All of the identifiable assets and liabilities of Sam Ltd were recorded at amounts equal to their
fair values except for the following:

Carrying amount Fair value

Plant (cost $120 000) $94 000 $96 000
Land 80 000 85 000
Inventory 20 000 24 000

The plant had an expected remaining useful life of 10 years. The land was sold by Sam Ltd in
February 2015. The inventory was all sold by 30 June 2014.
In February 2016, Sam Ltd transferred $3000 of the reserves on hand at 1 July 2013 to
retained earnings. The remaining $2000 was transferred in February 2017.
The court case involving the damages sought by the customer was settled in May 2017.
Sam Ltd was required to pay $7500 to the customer.

Required
Prepare the consolidation worksheet entries for the preparation by Sam Ltd of its consolidated
financial statements at 30 June 2017.
At 1 July 2013:
Net fair value of identifiable assets
and liabilities of Sam Ltd = ($100 000 + $5 000 + 10 000) (equity)
+ $2 000 (1 – 30%) (plant)
+ $5 000 (1 – 30%) (land)
+ $4 000 (1 – 30%) (inventory)
+ $6 000 (1 – 30%) (data bases)
- $10 000 (1 -30%) (damages payable)
- $5 000 (goodwill)
= $114 900
Consideration transferred = $123 500 - $6 000 (dividend receivable)
= $117 500
Goodwill = $2 600
Recorded goodwill = $5 000
Unrecorded goodwill = $(2 400)

A. Worksheet entries at 30 June 2017:

1. Business combination valuation entries

Accumulated depreciation Dr 26 000

Plant Cr 24 000
Deferred tax liability Cr 600
Business combination valuation reserve Cr 1 400

Depreciation expense Dr 200

Retained earnings (1/7/16) Dr 600
Accumulated depreciation Cr 800
(1/10 x $2 000 p.a. for 4 years)

Deferred tax liability Dr 240

Income tax expense Cr 60
Retained earnings (1/7/16) Cr 180

Amortisation expense – data bases Dr 1 500

Income tax expense Cr 450
Retained earnings (1/7/16) Dr 3 150
Transfer from business combination
valuation reserve Cr 4 200

Transfer from business combination valuation

reserve Dr 7 000
Income tax expense Dr 3 000
Damages expense Cr 7 500
Gain Cr 2 500

Accumulated impairment losses - goodwill Dr 7 000

Business combination valuation reserve Dr 2 400
Goodwill Cr 9 400
2. Pre-acquisition entries

At 1/7/13:

Retained earnings (1/7/13) Dr 10 000

Share capital Dr 100 000
Reserves Dr 5 000
Business combination valuation reserve Dr 2 500
Shares in Sam Ltd Cr 117 500

Dividend payable Dr 6 000

Dividend receivable Cr 6 000

At 30/6/17, the entry at acquisition date is affected by:

- sale of inventory in prior period
- payment of dividend: $6 000 in prior period
- sale of land in prior period
- transfer from reserves - $3 000 - in prior period
- transfer from reserve - $2 000 – in current period
- settlement of court case in current period
- de-recognition of data bases in current period

Retained earnings (1/7/16) * Dr 19 300

Share capital Dr 100 000
Reserves Dr 2 000
Business combination valuation reserve Cr 3 800
Shares in Sam Ltd Cr 117 500

* = $10 000 + $2 800 (BCVR - inventory) + $3 500 (BCVR – land) + $3 000 (reserve
transfer)

Transfer from reserves Dr 2 000

Reserves Cr 2 000

Business combination valuation reserve Dr 7 000

Transfer from business combination
valuation reserve Cr 7 000
(Court case settled)

Transfer from business combination valuation

reserve Dr 4 200
Business combination valuation reserve Cr 4 200
(Data bases de-recognised)
Question 20.2 Intragroup transactions

Numbat Ltd owns all of the shares of Goanna Ltd. In relation to the following intragroup
transactions, all parts of which are independent unless specified, prepare the consolidation
worksheet adjusting entries for preparation of the consolidated financial statements as at 30
June 2016.

Assume an income tax rate of 30%.

(a) On 1 July 2015, Numbat Ltd sold an item of plant costing $15 000 to Goanna Ltd for $18
000. Numbat Ltd had not charged any depreciation on the plant before the sale. Both
entities depreciate assets at 10% p.a. on cost.

(b) On 1 January 2014, Goanna Ltd sold a new tractor to Numbat Ltd for $30 000. This had
cost Goanna Ltd $24 000 on that day. Both entities charged depreciation at the rate of 10%
p.a. on cost.

(c) On 1 July 2015, Numbat Ltd sold an item of machinery to Goanna Ltd for $9000. This item
had cost Numbat Ltd $6000. Numbat Ltd regarded this item as inventory whereas Goanna
Ltd intended to use it as a non-current asset. Goanna Ltd charges depreciation at the rate
of 10% p.a. on cost.

(d) In February 2015, Numbat Ltd sold inventory to Goanna Ltd for $9000, at a mark-up of
20% on cost. One-quarter of this inventory was unsold by Goanna Ltd at 30 June 2015.

(e) Goanna Ltd sold land to Numbat Ltd in December 2015. The land had originally cost
Goanna Ltd $20 000, but was sold to Numbat Ltd for only $16 000. To help Numbat Ltd
pay for the land, Goanna Ltd gave Numbat Ltd an interest-free loan of $9000, and the
balance was paid in cash. Numbat Ltd has as yet made no repayments on the loan.

(f) On 1 July 2014, Goanna Ltd rented a spare warehouse to be used jointly by Numbat Ltd
and Galah Ltd with each company paying half the agreed rent to Goanna Ltd. The rent
paid to Goanna Ltd in the 2014–15 year was $300 while the rent paid in the 2015–16 year
was $350.

(a) Proceeds on sale of plant Dr 18 000

Carrying amount of asset sold Cr 15 000

Asset Cr 3 000

OR

Gain on sale of plant Dr 3 000

Asset Cr 3000

Deferred tax asset Dr 900

Income tax expense Cr 900

Accumulated depreciation Dr 300

Depreciation expense Cr 300

(10% x $3000 p.a.)

Income tax expense Dr 90

Deferred tax asset Cr 90

(b) Retained earnings (1/7/15) Dr 4 200

Deferred tax asset Dr 1 800

Tractors Cr 6 000

Accumulated depreciation Dr 1 500

Depreciation expense Cr 600

Retained earnings (1/7/15) Cr 900

(10% x $6000 p.a. for 2.5 years)

Income tax expense Dr 180

Retained earnings (1/7/15) Dr 270

Deferred tax asset Cr 450

(c) Sales revenue Dr 9 000

Cost of sales Cr 6 000

Machinery Cr 3 000

Deferred tax asset Dr 900

Income tax expense Cr 900

Accumulated depreciation Dr 300

Depreciation expense Cr 300

(10% x $3000 p.a.)

Income tax expense Dr 90

Deferred tax asset Cr 90

(d) Retained earnings (1/7/12) Dr 262.5

Income tax expense Dr 112.5

Cost of sales Cr 375

(e) Proceeds on sale of land Dr 16 000

Land Dr 4 000

Carrying amount of land sold Cr 20 000

OR Land Dr 4 000

Loss on sale of land Cr 4 000

 Income tax expense Dr 1 200

Deferred tax liability Cr 1 200

(30% x $4 000)

Loan from Goanna Ltd Dr 9 000

Loan to Numbat Ltd Cr 9 000

(f) Rent revenue Dr 175

Rent expense Cr 175

Question 20.7 Consolidation worksheet

On 1 July 2015, Fluffy Ltd acquired all the issued shares of Glider Ltd. Fluffy Ltd paid $30 000
in cash and 20 000 shares in Fluffy Ltd valued at $3 per share. At this date, the equity of Glider
Ltd consisted of $66 000 share capital and $6000 retained earnings.
At 1 July 2015, all the identifiable assets and liabilities of Glider Ltd were recorded at
amounts equal to their fair values except for:

Carrying amount Fair value

Plant (cost $150 000) $120 000 $123 000
Patents 90 000 105 000
Inventory 18 000 22 500

The plant was considered to have a further 5-year life. The patents were sold for $120 000 to
an external entity on 18 August 2015. The inventory was all sold by 30 June 2016.
Additional information
(a) Fluffy Ltd sells certain raw materials to Glider Ltd to be used in its manufacturing process.
At 1 July 2016, Glider Ltd held inventory sold to it by Fluffy Ltd in the previous year at a
profit of $600. During the 2016–17 year, Fluffy Ltd sold inventory to Glider Ltd for $21
000. None of this was on hand at 30 June 2017.
(b) Glider Ltd also sells items of inventory to Fluffy Ltd. During the 2016–17 year, Glider Ltd
sold goods to Fluffy Ltd for $4500. At 30 June 2017, inventory which had been sold to
Fluffy Ltd at a profit of $300 was still on hand in Fluffy Ltd’s inventory.
(c) On 1 July 2016, Glider Ltd sold an item of plant to Fluffy Ltd for $15 000. This plant had a
carrying amount in the records of Glider Ltd of $14 000 at time of sale. This type of plant is
depreciated at 10% p.a. on cost.
(d) On 1 January 2015, Fluffy Ltd sold an item of inventory to Glider Ltd for $18 000. The
inventory had cost Fluffy Ltd $16 000. This item was classified by Glider Ltd as plant.
Plant of this type is depreciated by Glider Ltd at 20% p.a.
(e) On 1 March 2017, Glider Ltd sold an item of plant to Fluffy Ltd. Whereas Glider Ltd
classified this as plant, Fluffy Ltd classified it as inventory. The sales price was $9000 which
included a profit to Glider Ltd of $1500. Fluffy Ltd sold this to another entity on 31 March
for $9900.
(f) The tax rate is 30%.
At 30 June 2017, the following financial information was provided by the two companies:

Fluffy Ltd Glider Ltd

Dr Cr Dr Cr
Sales revenue 64 500 78 000
Cost of sales 30 900 46 350
Trading expenses 4 800 9 000
Office expenses 7 950 4 050
Depreciation expenses 1 800 3 900
Proceeds on sale of plant 9 000 15 000
Carrying amount of plant sold 7 500 14 000
Income tax expense 11 100 7 300
Share capital 96 000 66 000
Retained earnings (1/7/16) 48 000 31 500
Current liabilities 21 100 10 500
Deferred tax liability 11 000 15 000
Plant 57 000 107 250
Accumulated depreciation – plant 18 300 33 450
Intangibles 12 000 11 100
Deferred tax assets 8 100 9 450
Shares in Glider Ltd 90 000 0
Inventory 28 500 24 600
Receivables 8 250 12 450
267 900 267 900 249 450 249 450

Required
Prepare a consolidation worksheet for the preparation of the consolidated financial statements
of Fluffy Ltd at 30 June 2017.

At 1 July 2015:

Net fair value of identifiable assets

and liabilities of Glider Ltd = $66 000 + $6 000 (equity)
+ $4 500 (1 – 30%) (inventory)
+ $15 000 (1 – 30%) (patents)
+ $3 000 (1 – 30%) (plant)
= $87 750
Consideration transferred = $90 000
Goodwill = $2 250

1. Business combination valuation entries

Accumulated depreciation Dr 30 000

Plant Cr 27 000
Deferred tax liability Cr 900
Business combination valuation reserve Cr 2 100

Depreciation expense Dr 600

Retained earnings (1/7/16) Dr 600
Accumulated depreciation Cr 1 200
(1/5 x $3000 p.a. for 2 years)

Deferred tax liability Dr 360

Income tax expense Cr 180
 Retained earnings (1/7/16) Cr 180

Goodwill Dr 2 250
Business combination valuation reserve Cr 2 250

2. Pre-acquisition entries

At 1/7/15:

Retained earnings (1/7/15) Dr 6 000

Share capital Dr 66 000
Business combination valuation reserve Dr 18 000
Shares in Glider Ltd Cr 90 000

At 30/6/17:

Retained earnings (1/7/16)* Dr 19 650

Share capital Dr 66 000
Business combination valuation reserve Dr 4 350
Shares in Glider Ltd Cr 90 000

(* = $6000 + $3 150 + $10 500)

3. Sales and profit in closing inventory

Sales revenue Dr 21 000
Cost of sales Cr 21 000

Sales revenue Dr 4 500

Cost of sales Cr 4 200
Inventory Cr 300

Deferred tax asset Dr 90

Income tax expense Cr 90

4. Profit in opening inventory of Glider Ltd

Retained earnings (1/7/16) Dr 420

Income tax expense Dr 180
Cost of sales Cr 600

5. Sale of Plant - current period

Proceeds on sale of plant Dr 15 000
Carrying amount of plant sold Cr 14 000
Plant Cr 1 000

Deferred tax asset Dr 300

Income tax expense Cr 300

Accumulated depreciation - plant Dr 100

Depreciation expense Cr 100
(10% x $1000)

Income tax expense Dr 30

Deferred tax asset Cr 30
 6. Sale of Inventory classified as Plant : prior period

Retained earnings (1/7/16) Dr 1 400

Deferred tax asset Dr 600
Plant Cr 2 000
Accumulated depreciation Dr 1000
Depreciation expense Cr 400
Retained earnings (1/7/16) Cr 600
(20% x $2000 p.a. for 1.5 years)

Income tax expense Dr 120

Retained earnings (1/7/16) Dr 180
Deferred tax asset Cr 300
7. Sale of Plant classified as Inventory: current period

Proceeds on sale of plant Dr 9 000

Carrying amount of plant sold Cr 7 500
Cost of sales Cr 1 500

Fluffy Glider Adjustments Group

Ltd Ltd Dr Cr
Sales revenue 64 500 78 000 3 21 000 117 000
3 4 500
Cost of sales 30 900 46 350 21 000 3 49 950
4 200 3
600 4
1 500 7
Gross profit 33 600 31 650 67 050
Trading expenses 4 800 9 000 13 800
Office expenses 7 950 4 050 12 000
Depreciation 1 800 3 900 1 600 100 5 5 800
400 6
14 550 16 950 31 600
Profit from trading 19 050 14 700 35 450
Proceeds from sale of 9 000 15 000 5 15 000 0
plant 7 9 000
Carrying amount of 7 500 14 000 14 000 5 0
plant sold 7 500 7
Gain/loss on sale of 1 500 1 000 0
machinery
Profit before tax 20 550 15 700 35 450
Tax expense 11 100 7 300 4 180 180 1 18 160
5 30 90 3
6 120 300 5

Profit 9 450 8 400 17 290

Retained earnings 48 000 31 500 1 600 180 1 57 750
(1/7/16) 2 19 650 200 6
4 420
6 1 400
6 60
 Retained earnings 57 450 39 900 75 040
(30/6/17)
Share capital 96 000 66 000 2 66 000 96 000
BCVR -- -- 2 4 350 2 100 1 0
2 250 1
Total equity 153 450 105 900 171 040

Current liabilities 21 100 10 500 31 600

Deferred tax liability 11 000 15 000 1 360 900 1 26 540
Total liabilities 32 100 25 500 58 140
Total equity and 185 550 131 400 229 180
liabilities

Fluffy Glider Adjustments Group

Ltd Ltd Dr Cr
Plant 57 000 107 250 27 000 1 134 250
1 000 5
2 000 6
Accumulated (18 300) (33 450) 1 30 000 1 200 1 (22 250)
depreciation 5 100
6 600
Intangibles 12 000 11 100 23 100
Shares in Glider Ltd 90 000 - 90 000 2 0
Deferred tax asset 8 100 9 450 3 90 30 5 18 330
5 300 180 6
6 600
Inventory 28 500 24 600 300 3 52 800
Receivables 8 250 12 450 20 700
Goodwill 0 0 1 2 250 2 250
Total assets 185 550 131 400 177 210 177 210 229 180
Question 20.13 Consolidation worksheet, consolidated financial
statements

On 1 July 2015, Ghost 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
Inventory 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 2017. Any adjustments for differences
between carrying amounts at acquisition date and fair values are made on consolidation.
During the year ended 30 June 2016, all inventories on hand at acquisition date were sold, and
the land was sold on 1 June 2017. Any valuation reserves created are transferred on
consolidation to retained earnings when assets are sold or fully consumed.

Additional information
(a) 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.
(b) On 1 July 2016, Bat Ltd has on hand inventory worth $12 000, being transferred from
Ghost Ltd in June 2016. The inventory had previously cost Ghost Ltd $8000. On 31 March
2017, Bat Ltd transferred an item of plant with a carrying amount of $10 000 to Ghost Ltd
for $15 000. Ghost 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.
(c) On 1 January 2017, Bat Ltd acquired $8000 inventory from Ghost Ltd. This inventory
originally cost Ghost Ltd $5000. The profit in inventory on hand at 30 June 2017 was
$1000.
(d) During the year ending 30 June 2017, Bat Ltd sold inventory costing $12 000 to Ghost Ltd
for $18 000. Two-thirds of this was sold to external parties for $9000.
(e) On 1 January 2016, Ghost Ltd sold furniture to Bat Ltd for $8000. This had originally cost
Ghost 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.
(f) Ghost Ltd sold some land to Bat Ltd in December 2016. The land had originally cost Ghost
Ltd $25 000, but was sold to Bat Ltd for only $20 000. To help Bat Ltd pay for the land,
 Ghost Ltd gave Bat Ltd an interest-free loan of $12 000. Bat Ltd has as yet made no
repayments on the loan.
(g) The tax rate is 30%.
On 30 June 2017 the trial balances of Ghost Ltd and Bat Ltd were as follows:

Debit balances Ghost Ltd Bat Ltd

Shares in Bat Ltd $325 000 —
Cash 7 800 $35 000
Receivables 6 000 20 000
Inventory 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 (1/7/16) 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 34 000 114 000
equipment
Accumulated depreciation – machinery 1 000 3 000
Accumulated depreciation – furniture 1 000 2 000
$794 000 $804 000

Required
Prepare the consolidation worksheet for Ghost Ltd for the preparation of consolidated financial
statements at 30 June 2017.

At 1 July 2015:
Net fair value of identifiable assets,
liabilities and contingent liabilities
of Bat Ltd = ($200 000 + $25 000 + $45 000) (equity)
+ $10 000 (1 – 30%) (inventory)
+ $20 000 (1 –30%) (land)
+ $4 000 (1 – 30%) (plant & equipment)
+ $1 000 (1 – 30%) (machinery)
+ $10 000 (1 – 30%) (trademark)
 - $25 000 (goodwill)
Net fair value acquired = $276 500
Cost of combination = $330 000
Goodwill acquired = $53 500
Unrecorded goodwill acquired = $53 500 – $25 000
= $28 500

1. Business combination valuation entries at 30 June 2017

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 (1/7/16) Dr 800
Accumulated depreciation - P&E Cr 1 600
($4 000 /5)

Deferred tax liability Dr 480

Income tax expense Cr 240
Retained earnings (1/7/16) Cr 240

Depreciation expense – machinery Dr 125

Gain (loss) on sale of non-current assets Dr 625
Income tax expense Cr 225
Retained earnings (1/7/16) Dr 175
Transfer from business combination
valuation reserve Cr 700

2. Pre-acquisition entry 30/6/15

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 30/6/17

Retained earnings* (1/7/16) 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
* $45 000 + $7000 BCVR - Inventory

Transfer from business combination

valuation reserve Dr 14 000
Business combination valuation reserve Cr 14 000

Transfer from business combination

valuation reserve Dr 700
Business combination valuation reserve Cr 700

Shares in Bat Ltd Dr 5 000

Interim dividend paid Cr 5 000

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. Inter-entity sales of inventory: Profit in opening inventory

Retained earnings (1/7/16) Dr 2 800

Income tax expense Dr 1 200
Cost of sales Cr 4 000

6. Transfer of plant to inventory: Ghost Ltd – Bat Ltd

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. Intragroup sales of inventory: Profit in ending 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. Intragroup sales of inventory: Profit in ending 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. Sale of Furniture

Retained earnings (1/7/16) Dr 700

Deferred tax asset Dr 300
Furniture Cr 1 000

10. Depreciation

Accumulated depreciation - furniture Dr 150

Depreciation expense Cr 100
Retained earnings (1/7/16) Cr 50

Income tax expense Dr 30

Retained earnings (1/7/16) Dr 15
Deferred tax asset Cr 45
QUESTION 20.13 (cont’d)

11. Sale of land: Ghost Ltd to Bat Ltd

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

Loan from Ghost Ltd Dr 12 000

Loan to Bat Ltd Cr 12 000

Financial Ghost Bat Adjustments Group

Statements Ltd Ltd Dr Cr
Sales revenue 220 000 182 000 7 8 000 376 000
8 18 000
Other income 62 000 20 000 3 5 000 73 000
4 4 000
282 000 202 000 449 000
Cost of sales 162 000 128 000 4 000 5 263 000
7 000 7
16 000 8
Other expenses 53 000 41 000 1 800 100 10 94 825
1 125
1
215 000 169 000 357 825
Trading profit 67 000 33 000 81 175
Gains/losses on 22 000 25 000 1 20 000 5 000 11 26 375
sale of non- 1 625
current assets 6 5 000

Profit before 89 000 58 000 117 550

tax
Tax expense 20 000 18 000 5 1 200 6 000 1 31 865
10 30 240 1
11 1 500 225 1
1 500 6
300 7
600 8
Profit 69 000 40 000 85 685
Retained 30 000 45 000 1 800 240 1 18 800
earnings 1 175 50 10
(1/7/16) 2 52 000
5 2 800
9 700
10 15
Transfer from 0 0 2 14 700 14 000 1 0-
BCV reserve 700 1
99 000 85 000 104 485
Dividend paid 12 000 10 000 5 000 2 12 000
5 000 3
Dividend 6 000 4 000 4 000 4 6 000
declared
18 000 14 000 18 000
Retained 81 000 71 000 86 485
earnings
(30/6/17)
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 1 -
2 800 1
Total Equity 413 000 296 000 418 485
Deferred tax - - 1 480 3 000 1 5 220
liabilities 1 200 1
1 500 11
Dividend 6 000 4 000 4 4 000 6 000
payable
Current tax 8 000 2 500 10 500
liability
Loan from - 12 000 11 12 000
Ghost Ltd
Provisions 78 000 169 500 247 500
Total 92 000 188 000 269 220
Liabilities
Total 505 000 484 000 687 705
Liabilities +
Equity
 Ghost Bat Group
Ltd Ltd Adjustments
Dr Cr
Shares in Bat Ltd 325 000 -- 325 000 2 --
Cash 7 800 35 000 42 800
Inventory 20 000 50 000 5 000 6 62 000
1 000 7
2 000 8
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 (34 000) (114 000) 1 114 000 1 600 1 (35 600)
depreciation – P & E
Machinery 15 000 15 000 30 000
Accumulated (1 000) (3 000) (4 000)
depreciation – Mach.
Furniture 7 000 8 000 1 000 9 14 000
Accumulated (1 000) (2 000) 10 150 (2 850)
depreciation – Furn.
Trademark 100 000 1 10 000 110 000
Goodwill - 25 000 2 28 500 53 500
Deferred tax assets 10 200 - 6 1 500 45 10 12 855
7 300
8 600
9 300
Loan to Bat Ltd 12 000 - 12 000 11

Total assets 505 000 484 000 687 705

QUESTION 20.13 (cont’d)

GHOST LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for financial year ended 30 June 2017

Income:
Sales revenue $376 000
Other income 73 000
449 000
Expenses:
Cost of sales 263 000
Other 94 825
333 800
Trading profit 81 175
Gains/(losses) on sale of non-current assets 26 375
Profit before income tax 117 550
Income tax expense 31 865
Profit for the period $85 685
Other items of comprehensive income 0
Comprehensive income $85 685

GHOST LTD
Consolidated Statement of Changes in Equity
for the financial year ended 30 June 2017

Comprehensive income for the period $85 685

Retained earnings:
Balance at 1 July 2016 $18 800
Profit for the period 85 685
Dividend paid (12 000)
Dividend declared (6 000)
Balance at 30 June 2017 $86 485

General reserve:
Balance at 1 July 2016 $20 000
Balance at 30 June 2017 $20 000

Share capital:
Balance at 1 July 2016 $312 000
Balance at 30 June 2017 $312 000
QUESTION 20.13 (cont’d)

GHOST LTD
Consolidated Statement of Financial Position
as at 30 June 2017

ASSETS
Current Assets
Cash $42 800
Inventories 62 000
Receivables 22 000
Total Current Assets 126 800
Non-current Assets
Property, plant and equipment
Land $80 000
Plant & Equipment $303 000
Accumulated depreciation (35 600) 267 400
Machinery $30 000
Accumulated depreciation (4 000) 26 000
Furniture $14 000
Accumulated depreciation (2 850) 11 150
Trademark 110 000
Goodwill 53 500
Tax assets: Deferred tax asset 12 855
Total Non-current Assets 560 905
Total Assets $687 705

EQUITY AND LIABILITIES

Equity
Share capital $312 000
General reserve 20 000
Retained earnings 86 485
Total Equity $418 485
Current Liabilities
Dividend payable 6 000
Current tax liabilities 10 500
Provisions 247 500
Total Current Liabilities 264 000
Non-current Liabilities:
Deferred tax liabilities 5 220
Total Non-current Liabilities 5 220
Total Liabilities $269 220
Total Equity and Liabilities $687 705