In: Accounting
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.
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