why is the 120 000 added back in the calculation for the statement of financial position in July 2024

Exercise 25.6 Accounting for business combination by acquirer Police Ltd and Box Ltd are small family-owned companies engaged in vegetable growing and distribution. The Jones family owns the shares in Box Ltd and the Tyler family owns the shares in Police Ltd. The head of the Jones family wishes to retire but his two sons are not interested in carrying on the family business. Accordingly, on 1 July 2024, Police Ltd is to take over the operations of Box Ltd, which will then liquidate. Police Ltd is asset- rich but has limited overdraft facilities so the following arrangement has been made. Police Ltd is to acquire all of the assets, except cash, delivery trucks and motor vehicles, of Box Ltd and will assume all of the liabilities except accounts payable. In return, Police Ltd is to give the shareholders of Box Ltd a block of vacant land, two delivery vehicles and sufficient additional cash to enable the company to pay off the accounts payable and the liquidation costs of $1500. On the liquidation of Box Ltd, Mr Jones to receive the land and the motor vehicles and his two sons are to receive the delivery trucks. The land and vehicles had the following market values at 30 June 2024. Carrying amount $50 000 30 000 Fair value $ 120 000 28 000 Freehold land Delivery trucks The statements of financial position of the two companies as at 30 June 2024 were as follows. Cash Accounts receivable Freehold land Buildings (net) Cultivation equipment (net) Irrigation equipment Delivery trucks Motor vehicles Police Ltd $ 3500 25000 250 000 25000 65 000 16 000 45000 25000 $454500 $ 26000 150 000 35 000 70 000 100 000 0 28500 45000 $454500 Box Ltd $ 2000 15000 100 000 30 000 46 000 22 000 36 000 32 000 $283 000 $ 23500 80 000 35 000 52 500 0 60 000 0 32 000 $283 000 Accounts payable Loan Bank of Gallifrey Loan Williams Bros Loan Smith Corp. Share capital - 100 000 shares - 60 000 shares Reserves Retained earnings All the assets of Box Ltd are recorded at fair value, with the exception of: Freehold land Buildings Cultivation equipment Motor vehicle Fair value $ 120 000 40 000 40 000 34000 Required 1. Prepare the acquisition analysis and the journal entries to record the acquisition of Box Ltd's operations in the records of Police Ltd. 2. Prepare the statement of financial position of Police Ltd after the business combination. (L06) POLICE LTD Statement of Financial Position as at 1 July 2024 $40 000 40 000 Current Assets Accounts receivable (25 000 + 15 000) Total Current Assets Non-Current Assets Freehold land (250 000 + 70 000 120 000 + 120 000) Buildings (25 000 + 40 000) Cultivation equipment (65 000 + 40 000) Irrigation equipment (16 000 + 22 000) Delivery trucks (45 000 2000 28 000) Motor vehicles Goodwill Total Non-current Assets Total Assets 320 000 65 000 105 000 38 000 15 000 25 000 101 500 669 500 709 500 19 500 26 000 45 500 Current Liabilities Bank overdraft (3 500 - 23 000) Accounts payable Total Current Liabilities Non-current Liabilities Loan - Bank of Gallifrey (150 000 + 80 000) Loan - Williams Bros (35 000 + 35 000) Loan - Smith Corp (70 000 + 52 500) Total Non-current Liabilities Total Liabilities Net Assets 230 000 70 000 122 500 422 500 468 000 $241 500 Equity Share capital Other reserves Retained earnings (45 000 + 70 000 - 2000) Total Equity $100 000 28 500 113 000 $241 500