In: Accounting
20. Big Ltd acquired all the assets and liabilities of Small Ltd on 1 July 2019. At this date, the assets and liabilities of Rod Ltd consisted of the following:
Carrying Amount ($) |
Fair Value($) |
|
Assets |
||
Cash |
250,000 |
600,000 |
Accounts receivable |
450,000 |
500,000 |
Land |
200,000 |
300,000 |
Vehicle |
100,000 |
200,000 |
Accumulated depreciation -Vehicle |
(20,000) |
|
Liabilities |
||
Accounts payable |
150,000 |
150,000 |
Loans |
200,000 |
200,000 |
Equity |
||
Share Capital –@$6 per share |
600,000 |
|
Reserves |
30,000 |
In exchange for these assets and liabilities, Big Ltd agreed to
1- Issue 2 Big Ltd shares for every Small Ltd Share – Big Ltd shares were considered to have a fair value of $3 per share; costs of issue were $1,500
2- Transfer a piece of Land to the former shareholders of Small Ltd – the Land was carried in the records of Big Ltd at $200,000 but was considered to have a fair value of $500,000.
3- Pay $3 per share in cash to each of the former shareholders of Small Ltd. Big Ltd incurred $5000 in costs associated with the acquisition of these net assets.
Required: