Question

In: Accounting

On 1 July 2020, Sydney Ltd took control of the assets and liabilities of Perth Ltd....

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:

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

Solutions

Expert Solution

Answer:

The journal entry for acquisition will include the assets acquired at fair value (Debited), liabilities at fair value (credited), goodwill (proceeds minus fair value of net identifiable assets - debited) and share capital (Credited).

Explanation:

Fair value of net identifiable assets

= 67,000 + 68,000 + 35,000 + 12,000 - 18,000

= $164,000

.

Consideration paid in shares = 80,000 x 2.4 = 192,000

.

Goodwill

= Consideration paid - fair value of net identifiable assets

= 192,000 - 164,000 = $28,000

.

Journal entry of acquisition will be as follows:

Machinery                                         Dr                                          67,000

Fixtures and fittings                        Dr                                          68,000

Vehicles                                             Dr                                          35,000

Current assets                                  Dr                                          12,000

Goodwill                                             Dr                                          28,000

. To Current liabilities 18,000

. To Share capital                                                                                               192,000

.

Cost of issue of shares                  Dr                                          1,600

. To Bank account                                                                                              1,600

ekkarill92 answered 10 months ago
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