SECTION A (5 marks)

Impulsive Ltd is a seafood business with headquarters in San Remo. Impulsive Ltd products include many varieties of seafood but one item lacking in its product range is Tasmanian Atlantic Salmon. On 1 March 2021, the board of Impulsive Ltd decided to investigate a takeover of a Tasmanian company, North West Pty Ltd, whose major product is the packaging of Tasmanian Atlantic Salmon. Strategically, North West Pty Ltd would be a good fit with Impulsive Ltd as Impulsive owns two processing factories in Burnie, one of which is under-utilised. If North West Pty Ltd were acquired, then Impulsive Ltd would liquidate the company and transfer all the processing work to one of the Burnie factories.

An agreement was reached on 1 May 2021. The financial statements of North West Pty Ltd at 1 May 2021 showed the following information:

Plant

$167 000

Accumulated depreciation - plant

(40 000)

Land

65 000

Cash

6 000

Accounts receivable

64 800

Inventory

27 200

Total assets

290 000

Accounts payable

24 300

Loans

65 700

Total liabilities

90 000

Share capital - 80 000 A ordinary shares

80 000

Share capital - 80 000 B ordinary shares

80 000

Retained earnings

40 000

Total equity

200 000

All the assets and liabilities of North West Pty Ltd were recorded at amounts equal to fair value except for:

Fair Value

Plant

140 000

Land

135 000

Inventory

28 000

North West Pty Ltd also had a brand '41 North West Zone' that was not recorded by the company because it had been internally generated. It is valued at $50000. North West Pty Ltd had not recorded both the interest accrued on the loans amounting to $12800 and annual leave entitlements of $23000.

Impulsive Ltd decided to acquire all the assets of North West Pty Ltd except for the cash. In exchange for these assets, Impulsive Ltd agreed to provide:

Three shares in Impulsive Ltd for every four A ordinary shares held in North West Pty Ltd. The fair value of each Impulsive Ltd share was agreed to be $4.20.

A patent for oceanography mapping hardware and software to the owners of the B ordinary shares held in North West Pty Ltd. (The patent is recognised by Impulsive Ltd at a carrying amount of $40000.Its fair value is 88000.)

Sufficient additional cash to enable North West Pty Ltd to pay off its liabilities.

The business combination occurred on 1 May 2021. Legal and accounting costs incurred by Impulsive Ltd in undertaking this business combination amounted to $20 000. Costs to issue the shares to the A ordinary shareholders of North West Pty Ltd were $1 500.

Required

Prepare the journal entries in the records of Impulsive Ltd at 1 May 2021 to record the business combination (dates and narrations are required).Show all calculations.