On 30 June 2020 River Ltd acquired 70 shares in Tributary Ltd for $90,000 The statements of financial position of both companies at that date (but prior to acquisition) were as follows River Ltd ($) Tributary Ltd ($) Cash 125,000 1,000 Accounts receivable 30,000 25,000 Inventories 50,000 18,000 Pro...

Prepare the journal entry in the books of River Ltd to record the acquisition River Ltd Dr Cash 90000 Dr Accounts Receivable 21000 Dr Inventories 16000 Dr Property Plant and Equipment 180000 Dr Financ ...

On 30 June 2020 River Ltd acquired 70% shares in Tributary Ltd for $90,000. The statements of

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Question:

On 30 June 2020 River Ltd acquired 70% shares in Tributary Ltd for $90,000. The statements of financial position of both companies at that date (but prior to acquisition) were as follows:

	River Ltd ($)	Tributary Ltd ($)
Cash	125,000	1,000
Accounts receivable	30,000	25,000
Inventories	50,000	18,000
Property, plant and equipment	275,000	155,500
Goodwill	20,000	0
Financial assets	60,000	22,500
	560,000	222,000
Accounts payable	65,000	80,000
Loan payable	0	40,000
Share capital - $1 share	400,000	82,000
Retained earnings	95,000	20,000
	560,000	222,000

The notes to Tributary Ltd’s financial statements reported a contingent liability relating to a loan guarantee. Although a present obligation existed, Tributary Ltd did not recognise a liability because of the difficulty of measuring the ultimate amount to be paid.

River Ltd assessed the fair values of the recorded identifiable assets of Tributary Ltd as:

Cash	$1,000
Accounts receivable	21,000
Inventories	16,000
Property, plant and equipment	180,000
Financial assets	$25,000

Tributary Ltd had also been undertaking research into new manufacturing equipment and had expensed a total of $15,000 research costs. River Ltd assessed that the fair value of the in-process research was $6,000. All liabilities were recorded at fair value and the contingent liability was assessed to have a fair value of $2,500. The tax rate is 28%.

Required:

Prepare the journal entry in the books of River Ltd to record the acquisition. (2 marks)

Calculate the fair value of net identifiable assets acquired, non-controlling interests, and the goodwill/gain on bargain purchase in this acquisition. (5 marks)