Question

On 1 July 2020, Sydney Ltd took control of the assets and liabilities of Perth Ltd. At this date the statement of financial position of Perth Ltd was as follows:

                                                                                                        Carrying amount        Fair value

          Machinery                                                                                            $40,000         $67,000

          Fixtures & fittings                                                                                  60,000         68,000

          Vehicles                                                                                                  35,000         35,000

          Current assets                                                                                       10,000         12,000

          Current liabilities                                                                                 (16,000)         (18,000)

          Total net assets                                                                                $129,000

          Share capital (80 000 shares at $1.00 per share)                           80,000

          General reserve                                                                                    20,000

          Retained earnings                                                                                 29,000

          Total equity                                                                                        $129,000

Prepare the journal entries in the records of Sydney Ltd at 1 July 2020 in the following situation, assuming the costs of issuing the shares by Sydney Ltd cost $1,600.

1. Sydney Ltd issued 80,000 shares having a fair value of $2.40 per share in exchange for the net assets of Perth Ltd

Answer 1

Sol :

Accounting Treatment in Separate Financials Statements of Sydney Ltd

Investment in Subsidiary A/c 192000

To Share Capital A/c 192000

( Being shares issued 80000@$2.40 = $192000)

Transaction Cost Expense(P/L) 1600

To Bank 1600

(Being cost of issuing shares expenses off)

Note : Assumed full control been acquired by Sydney Ltd. So Perth Ltd will become subsidiary of Sydney Ltd.

Accounting Treatment in Consolidated Financials Statements of Sydney Ltd

a) Calculation of Goodwill or Bargain Purchase Price

Consideration paid for the acquisition of Net Assets(1) = $192000

Fair Value of Non Controlling Interest(2) = Nil

(1) + (2) = $192000

Less : Fair Value Identifiable Net Assets = ($164000)

(67000+68000+35000+12000-18000)

Goodwill    = $28000

Note : Since Perth Ltd is a fully owned subsidiay there will be no minority control.So there will be Nil Non controlling Interest.

Accounting Treatment   

Machinery 67000

Fixtures & Fittings 68000

Vehicles 35000

Current Assets    12000

Goodwill 28000

To Current Liabilities 18000

To Share Capital 192000

To Non controlling Interest Nil

(Being entry passed for the consolidation made)