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Alma Ltd. Acquires all the issued shares (ex div.) of Davis Ltd on 1 July 2018...

Alma Ltd. Acquires all the issued shares (ex div.) of Davis Ltd on 1 July 2018 for 1762626. At this time of date Davis Ltd. recorded a dividend payable of 35000 and equity of the following –

Share capital

617000

General reserve

264000

Asset revaluation surplus

212000

All the identifiable assets and liabilities of Davis Ltd. were recorded at amount equals to their fair values at acquisition date except for the following-

Cost

Carrying amount

Fair value

Further life

Inventory

264000

475000

Land

529000

952000

Vehicle

740000

617000

1111000

5 years

Out of inventory 94% was sold by 30th June,2019 and remaining sold by 30th June,2020.

In May 2019 Davis transferred 106000 from retained earnings at 1 July,2018 to general reserve. Tax rate 30%.

  1. Prepare acquisition analysis at 1 July,2018
  2. Prepare consolidation worksheet entries at 30 June,2019.

Solutions

Expert Solution

Acquisition analysis at 1st july 2018.

Net fair value of identifiable assets and liabilities

equity (617000+264000+212000) 1093000
Add
Inventory =475000-264000= 211000 (1 - 30%) 147700
Land =952000-529000=423000(1 - 30%) 296100
Vehicle=1111000- 617000=494000(1-30%) 345800
TOTAL 1882600
Less
Consideration transferred =1762626 - 35000(dividend) 1727626
Caital reserve 154974

Consolidation worksheet entries at 30th june 2019

Accumulated depreciation 123000
Vehicle 371000
Deferred tax liability 148200
Business combination valuation reserve 345800
Depreciation expenses 98800
To accumulated depreciation 98800
(difference between carrying amount and fair value divided by useful years. 494000/5=98800
Deferred tax liability 29640
To income tax expenses 29640
(98800*30%)
Land 423000
To deferred tax liability 126900
To Business combination valuation reserve 296100
Inventory 12660
To deferred tax liability 3798
To Business combination valuation reserve 8862
(211000 *6% =12660)
Cost of sales 198340
To Income tax expenses 59502
To transfer from business combination valuation reserve 138838
(94% inventory sold , 211000 * 94%)

ekkarill92 answered 2 years ago
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