Question 2 (20 points) Duncan Ltd and Montgomery Ltd are two companies that are operating in...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Question 2 (20 points) Duncan Ltd and Montgomery Ltd are two companies that are operating in the agri- food industry in Tasmania. Duncan Ltd operates several businesses (e.g. cheese production, fresh organic chicken production), whilst Montgomery Ltd predominantly operates a beef cattle feedlot. After considerable negotiations it was agreed on 1 July 2020 that Duncan Ltd would purchase the entire business of Montgomery Ltd. The balance sheet of Montgomery Ltd immediately prior to the sale of the business was: Cash at bank Accounts receivable Land Buildings (net) Farm equipment (net) Irrigation equipment (net) Vehicles (net) Accounts payable Loan Share capital Retained earnings Carrying amount Fair value $ $ 20,000 20,000 140,000 125,000 620,000 840,000 530,000 550,000 360,000 364,000 220,000 225,000 160 000 172,000 2,050,000 80,000 80,000 480,000 480,000 670,000 820,000 2,050,000 The terms of the agreement state: i. Duncan Ltd is to provide cash of $480 000 on 1 July 2020 plus an additional $150 000 cash on 1 July 2022. Duncan Ltd's incremental borrowing rate is 10% and the present value of $1.00 at 10% for 2 years is 0.8264. ii. Duncan Ltd is to provide a piece of its prime coastal land to Montgomery Ltd. The piece of land in question has a carrying amount of $80 000 and a fair value of $220 000. iii. Duncan Ltd is to issue 100 000 shares to Montgomery Ltd, these having a fair value of $14.00. The directors of Montgomery Ltd have insisted that a term of the sale agreement states that they be compensated in cash for any fall in the fair value of these shares at the end of the first year after the sale. The financial advisors of Duncan Ltd have advised that there is an 80% probability of a fall in its shares to $13.50. iv.Montgomery Ltd is currently being sued by a neighbouring land owner for damage done to his crops when cattle escaped from one of Montgomery Ltd's feedlots. Duncan Ltd's lawyers estimate that there is an 80% probability that damages of $50 000 will have to be paid. v.The purchase of the business proceeded as per the agreement with Duncan Ltd incurring incidental legal fees of $25 000 and share issue costs of $18 000. Required A - Using the template provided, prepare an acquisition analysis for the purchase of the business of Montgomery Ltd by Duncan Ltd. [10 marks] B - Using the template provided, prepare general journal entries on 1 July 2020 (without narrations) in the books of Duncan Ltd to record the business acquisition under AASB 3 Business Combinations. Please note, only entries on 1 July 2020 are required. Subsequent journal entries affecting the business combination in the future (i.e. 1 July 2021 and 1 July 2022) are NOT required. [ 10 marks] [Total 20 marks] 2A: ▼ Paragraph V B U I ▼ Net fair value of identifiable assets, liabilites and contingent liabilities acquired: $ ... Question 2 (20 points) Duncan Ltd and Montgomery Ltd are two companies that are operating in the agri- food industry in Tasmania. Duncan Ltd operates several businesses (e.g. cheese production, fresh organic chicken production), whilst Montgomery Ltd predominantly operates a beef cattle feedlot. After considerable negotiations it was agreed on 1 July 2020 that Duncan Ltd would purchase the entire business of Montgomery Ltd. The balance sheet of Montgomery Ltd immediately prior to the sale of the business was: Cash at bank Accounts receivable Land Buildings (net) Farm equipment (net) Irrigation equipment (net) Vehicles (net) Accounts payable Loan Share capital Retained earnings Carrying amount Fair value $ $ 20,000 20,000 140,000 125,000 620,000 840,000 530,000 550,000 360,000 364,000 220,000 225,000 160 000 172,000 2,050,000 80,000 80,000 480,000 480,000 670,000 820,000 2,050,000 The terms of the agreement state: i. Duncan Ltd is to provide cash of $480 000 on 1 July 2020 plus an additional $150 000 cash on 1 July 2022. Duncan Ltd's incremental borrowing rate is 10% and the present value of $1.00 at 10% for 2 years is 0.8264. ii. Duncan Ltd is to provide a piece of its prime coastal land to Montgomery Ltd. The piece of land in question has a carrying amount of $80 000 and a fair value of $220 000. iii. Duncan Ltd is to issue 100 000 shares to Montgomery Ltd, these having a fair value of $14.00. The directors of Montgomery Ltd have insisted that a term of the sale agreement states that they be compensated in cash for any fall in the fair value of these shares at the end of the first year after the sale. The financial advisors of Duncan Ltd have advised that there is an 80% probability of a fall in its shares to $13.50. iv.Montgomery Ltd is currently being sued by a neighbouring land owner for damage done to his crops when cattle escaped from one of Montgomery Ltd's feedlots. Duncan Ltd's lawyers estimate that there is an 80% probability that damages of $50 000 will have to be paid. v.The purchase of the business proceeded as per the agreement with Duncan Ltd incurring incidental legal fees of $25 000 and share issue costs of $18 000. Required A - Using the template provided, prepare an acquisition analysis for the purchase of the business of Montgomery Ltd by Duncan Ltd. [10 marks] B - Using the template provided, prepare general journal entries on 1 July 2020 (without narrations) in the books of Duncan Ltd to record the business acquisition under AASB 3 Business Combinations. Please note, only entries on 1 July 2020 are required. Subsequent journal entries affecting the business combination in the future (i.e. 1 July 2021 and 1 July 2022) are NOT required. [ 10 marks] [Total 20 marks] 2A: ▼ Paragraph V B U I ▼ Net fair value of identifiable assets, liabilites and contingent liabilities acquired: $ ...
Expert Answer:
Answer rating: 100% (QA)
Acquisition Analysis for the Purchase of Montgomery Ltd by Duncan Ltd Date 20231030 Acquiring Company Duncan Ltd Target Company Montgomery Ltd Consideration Cash 480000 on July 1 2020 plus an addition... View the full answer
Related Book For
International Business Law And Its Environment
ISBN: 9781305972599
10th Edition
Authors: Richard Schaffer, Filiberto Agusti, Lucien J. Dhooge
Posted Date:
Students also viewed these accounting questions
-
On 1 July 2020 Octavio Ltd acquired some corporate bonds issued by Garnish Ltd. These bonds cost $11,682,000. They had a face value of $10 million and offered a coupon rate of 10 per cent paid...
-
On 1 July 2020 Hessa acquired the following non-current investments: 80% of the equity share capital of Sara transferring BHD3.6 million in cash, BHD8 million on 1 July 2022 and two shares in Hessa...
-
On 1 July 2020 King Limited obtained control of Gizzard Limited by acquiring six million shares in Gizzard. Gizzard has eight million issued share. The purchase consideration comprised the following:...
-
Contact local employers and ask for copies of their employee handbooks. If none are available, research parent companies of local employers online to see if their employee handbooks are available....
-
Horton Industries' shareholders' equity included 100 million shares of $1 par common stock and a balance in paid-in capitalexcess of par of $900 million. Assuming that Horton retires shares it...
-
Use an x-integration to find the length of the segment of the line y = 2x + 3 between x = 1 and x = 3. Check by using the distance formula.
-
Contrast the federal income taxation of a corporation with that of a sole proprietorship and a partnership. Which of the three types of organizations must file a federal income tax return?
-
EOQ for manufacturer. Lakeland Company, which produces lawn mowers, purchases 18,000 units of a rotor blade part each year at a cost of $60 per unit Lakeland requires a 15% annual rate of return on...
-
Portsmouth Company makes upholstered furniture. Its only variable cost is direct materials. The demand for the company's products far exceeds its manufacturing capacity. The bottleneck (or...
-
Seawater with a concentration of 8000 g/m3 is pumped into a well-mixed tank at a rate of 0.6 m3/hr. Because of faulty design work, water is evaporating from the tank at a rate of 0.025 m3/hr. The...
-
Firm A and firm B are similar to each other but they have different dividend policies. Both the firms started 10 years ago, and the current financial managers know that the firms will close in one...
-
Find the x-intercept and y-intercept of the line. 3x+7y=-21
-
1. In any case, a plaintiff must establish standing to sue. That means they must have suffered an actual harm and the harm must be redressable. Think about why this standing requirement exists....
-
Find a peer - reviewed research article on the use of social marketing in public health. Summarize the message or article. And, identify who is the target audience? What is the main message it is...
-
Explain how modern operating systems implement virtual memory. How do techniques like paging and segmentation differ, and what are the implications for system performance and security ?
-
Fashionable Limited is an established clothing manufacturer in Hong Kong. The following is its profit and loss accounts for the year ended 31 March 2014: Sales gross profits Gain on disposal of fixed...
-
Consider the evolution of the radial position r(t) of a piece of plastic that, at some initial time t = 0, is dumped into the ocean along the coast (at r = R). By definition, the plastic's radial...
-
A circular concrete shaft liner with Youngs modulus of 3.4 million psi, Poissons ratio of 0.25, unconfined compressive strength 3,500 psi and tensile strength 350 psi is loaded to the verge of...
-
Kiobel and other environmental activists were arrested, tortured, and executed by the Nigerian military in 1995. They had been protesting Shell's oil exploration in the Ogoni region of Nigeria. A...
-
The defendant, who made and sold a medical preparation called the "Carbolic Smoke Ball," inserted the following advertisement in the Pall Mall Gazette on November 13, 1891: 100 reward will be paid by...
-
Campbell, an Australian citizen, was employed in the construction of health care facilities and schools in Afghanistan. The projects were funded by a U.S. government agency that extends financial and...
-
Hardy Instruments, Inc., is a manufacturer of various measuring and controlling instruments. Financial statement data for the firm are as follows: Required a. Using the given data, calculate ratios 1...
-
You are analyzing the performance of Jackson Corporation, a manufacturer of personal care products, for the most recent year. The following data are taken from the firm's latest annual report: In...
-
Past quarterly data are presented below for Company company's fiscal year ends on the Saturday nearest to January 31. The other company is the Gillette Company prior to its acquisition by Procter \&...
Study smarter with the SolutionInn App