Topic 1: Consolidation: Principles and accounting requirements On 1 July 2017, Patience Ltd acquired all the...

Topic 1: Consolidation: Principles and accounting requirements

Share Capital 650,000

General Reserve 20,000

Retained Earning 250,000

All the assets and liabilities of Silence Ltd were recorded at amounts equal to their fair values at the acquisition date, except some equipment recorded at $50,000 below its fair value with a related accumulated depreciation of $80,000. Silence Ltd accounted for all its property, plant and equipment in its own books using the cost model. In addition, Patience Ltd identified at acquisition date a contingent liability related to a lawsuit where Silence Ltd was sued by a former supplier and attached a fair value of $40,000 to that liability.

Required:

1. Prepare the acquisition analysis at 1 July 2017.

2. Prepare the consolidation worksheet entries for Patience Ltd’s group at 1 July 2017.

Solutions

Expert Solution

1	Acquisition analysis

	Cash consideration			$ 10,00,000
	Less: Cost of acquisition (Refer working below)			$ -8,50,000
			Goodwill	$ 1,50,000

Working	Share Capital	$ 6,50,000
	General Reserve	$ 20,000
	Retained earnings	$ 2,50,000	$9,20,000

	Fair value of equipment	$ 50,000
	Less: Accumulated depreciation	$ -80,000	$-30,000

	Contingent liabilty (lawsuit)		$-40,000
			$ 8,50,000


2	Consolidation worksheet entries for Patience Ltd’s group at 1 July 2017:

	Assets/Liabilties	Dr.	$ 8,50,000
	Goodwill	Dr.	$ 1,50,000
	Bank	Cr.		$ 10,00,000

ekkarill92 answered 11 months ago

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