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In: Accounting

please answer this Salad Ltd acquired all the net assets of an existing business, Lettuce Ltd...

please answer this

Salad Ltd acquired all the net assets of an existing business, Lettuce Ltd on 1 July 2020. The statements of financial position of the two companies immediately prior to the acquisition were as follows:

Salad Ltd

Lettuce Ltd

Cash

$4,200

$2,000

Accounts receivable

30,000

16,500

Freehold land

265,000

100,000

Building (net)

35,000

28,000

Cultivation equipment (net)

69,000

46,000

Irrigation equipment

18,000

21,000

Delivery trucks

46,000

36,000

Motor vehicles

30,000

32,000

497,200

281,500

Accounts payable

29,000

24,500

Loan - Bank of NSW

155,000

79,000

Loan - Bernard Bros

35,000

34,000

Loan - Golds Corp.

72,000

52,500

Share capital

110,000 shares

110,000

-

60,000 shares

-

60,000

Reserves

28,500

-

Retained earnings

67,700

31,500

497,200

281,500

All of the assets of Lettuce Ltd are recorded at fair value, with the exception of:

Fair value

Freehold land*

120,000

Buildings

40,000

Cultivation equipment

40,000

Motor vehicle

34,000

*Fair value excluding Lettuce’s vacant land.

The terms of the acquisition are as follows:

  • Salad Ltd is to acquire all of the assets, except cash, delivery trucks and motor vehicles of Lettuce Ltd and will assume all of the liabilities except accounts payable.
  • Salad Ltd is to give the share-holders of Lettuce Ltd a block of vacant freehold land, two delivery vehicles and sufficient additional cash to enable the company to pay of the accounts payable and then liquidation costs of $1,600.
  • On the liquidation of Lettuce Ltd, the former directors are to receive the land, motor

vehicles and the delivery trucks. The land and vehicles had the following values at 1 July 2020:

Carrying amount

Fair Value

Freehold Land

$50,000

$120,000

Delivery Trucks

30,000

27,000

Required:

  1. Prepare the acquisition analysis in relation to the acquisition.
  2. Prepare the journal entries in Salad Ltd to record the business combination.
  3. Prepare the statement of financial position of Salad Ltd immediately subsequent to the acquisition.

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