In: Accounting
On 1 July 2019, Gail Ltd acquired all the issued shares of Ray
Ltd for $90 000. The financial statements of Ray Ltd showed the
equity of Ray Ltd at that date to be:
Share capital-10000 $5 50,000
General reserve 25000
Retained earning 15000
All the assets and liabilities of Ray Ltd were recorded at amounts
equal to their fair values at that date.
During the year ending 30 June 2020, Ray Ltd undertook the
following actions.
• On 1 January 2020, transferred $5 000 from the general reserve
existing at 1 July 2019 to retained earnings.
Required:
(a) Prepare the pre-acquisition entries at 1 July 2019.
(b) Prepare the pre-acquisition entries at 30 June 2020.
Here Business Combination Valuation Reserve (BCVR) is NIL as assets taken on fair market value.
Part / Date | Accounts Title & Explanations | Debit | Credit |
(a) 1 July 2019 | Share Capital | 50,000 | |
General Reserve | 25,000 | ||
Retained Earning | 15,000 | ||
Investment in Ray Limited | 90,000 | ||
(To record pre-acquisition entry) | |||
(b) 30 June 2020 | Share Capital | 50,000 | |
General Reserve | 20,000 | ||
Retained Earning | 20,000 | ||
Investment in Ray Limited | 90,000 | ||
(To record pre-acquisition entry) | |||
In part (b) 5,000 minus in General reserve & 5,000 plus in Retained earning as a transfer |