Question: Part C Case Study On 1 July 2014, P Ltd acquired all the issued share capital of S Ltd, giving in exchange 50,000 shares in
Part C Case Study
On 1 July 2014, P Ltd acquired all the issued share capital of S Ltd, giving in exchange 50,000 shares in P Ltd, these having a fair value of $8 per share. At acquisition date, the balance sheet of P Ltd and S Ltd, and the fair value of S Ltd.s assets and liabilities, were as follows:
|
| P Ltd | S Ltd | |
|
| Carrying amount | Carrying amount | Fair value |
| Assets | |||
| Land | $150,000 | $100,000 | $120,000 |
| Equipment | $530,000 | $380,000 | $300,000 |
| Accumulated depreciation | ($300,000) | ($100,000) |
|
| Shares in S Ltd | $400,000 |
|
|
| Inventory | $90,000 | $65,000 | $76,000 |
| Cash | $10,000 | $8,000 | $8,000 |
| Total assets | $880,000 | $453,000 |
|
|
|
|
|
|
| Liabilities | |||
| Provisions | $20,000 | $50,000 | $50,000 |
| Payable | $24,000 | $45,000 | $45,000 |
| Tax liabilities | $15,000 | $8,000 | $8,000 |
| Total liabilities | $59,000 | $103,000 |
|
| Net assets | $821,000 | $350,000 |
|
| Equity | |||
| Share capital | $350,000 | $200,000 |
|
| Retained earnings | $471,000 | $150,000 |
|
| Total equity | $821,000 | $350,000 |
|
The tax rate is 30%.
Required:
1. Calculate the goodwill
2. Prepare the business combination valuation entries and pre-acquisition entry to be included in the consolidation worksheet when constructing the consolidated balance sheet on 1 July 2014.
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