Leo Ltd acquired all the assets and assumed all the liabilities of George Ltd on 1 July
Question:
Leo Ltd acquired all the assets and assumed all the liabilities of George Ltd on 1 July 2021. In exchange, Leo Ltd agreed to issue 6 Leo Ltd shares for every George Ltd share held and pay cash of $15.6 per share to the former shareholders of George Ltd for each share held in George Ltd. Leo Ltd and George Ltd shares were assessed to have a fair value of $9.1 per share and $6 per share, respectively. Costs of share issue were $800.
On 1 July 2021, the financial position of George Ltd was as follows:
Additional information:
• On 30 June 2021, George Ltd had reported a contingent liability relating to a guarantee given by that company to another entity. George Ltd did not record the guarantee as a liability because of the difficulty of measuring the liability. The fair value of this contingent liability was assessed as $72,000.
• The assets of George Ltd did not include a patent that was valued by Leo Ltd at $20,000.
• Leo Ltd incurred $15 000 in costs in relation to accounting and legal fees in relation to its acquisition of George Ltd.
Required:
Prepare the journal entries in the records of Leo Ltd in relation to its acquisition of George Ltd on 1 July 2021.
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott