Question

On 1 July 2017, Patience Ltd acquired all the issued shares of Silence Ltd for a cash consideration of $1,000,000. At that date, the financial statements of Silence Ltd showed the following information.
Share capital $650000

General reserve $20000

Retained earnings $ 250000

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.

Question 1
Max. marks allocated
Acquisition analysis (Part 1)
5
Consolidation worksheet entries (Part 2)
14
Presentation
1
Total
20

I need the above practical question done asap. What to need to do is mentioned in required field. ..thank you

Answer 1

Answer:-

a. Aquisition Analysis-

Purchase Consideration = $ 1,000,000

Fair Value of Total Assets and Liablities = $ (650000+20000+250000)

= $ 920,000

Assuming that the Patience Ltd recorded Contingent Liability at its Fair value of $v 40,000.

Value of the Assets and Liabilities Taken over by Patience Ltd = (920000-50000-40000)

= $ 830,000

The Amount paid towards Goodwill = 1,000,000 - 830,000

= $ 170,000

b.

Consolidation Worksheets Entries:-

1. Purchase Consideration A/c - Dr $1,000,000

To Cash A/c $1,000,000

( Being shares of Silence Ltd purchased for $ 1 million)

2. Net Assets A/c - Dr $ 870,000

Goodwill A/c - Dr $ 170,000

To Liability A/c $ 40,000

To Purchase Consideration $ 1,000,000

Balance Sheet as at 1st July' 2017

Particulars				Notes	Amount
A. Liabilities
	Share Holder's Fund
		Share capital
		Reserve & Surplus
	Non Current Liabilities
	Current Liabilities
		Trade Payable
		Other Liabilities		1	$                40,000
			Total		$          40,000.00
B. Assets
	Non Current Assets
		Tangible Assets		2	$       870,000.00
		Intangible Assets		3	$       170,000.00
	Current Assets
		Inventory
		Trade Receivables
		Cash & Cash Equivalents		4	$ (1,000,000.00)
			Total		$          40,000.00

Notes to Accounts-

1. Other Liabilities-

Since the other data is not given, the value of other Liabilities is:-

Liabilities towards Former Supplier = $ 40,000

2. Tangible Assets:-

The Value of the Other Assets and Liablities is not given in the question. So the value of the Other Assets ad Liabilities except Goodwill is $ 870,000 which is Net of liabilities.

Tangible Assets = $ 870,000

3. Goodwill:-

Value of Goodwill aquired from Supplier Ltd = $ 170,000

4. Cash & Cash Equivalent:-

Cash Paid to Supplier Ltd = 1,000,000

Since the other Information is not given in the question,

Cash = - $ 1,000,000