Consolidation On 1 July 2015, Fluffy Ltd acquired all the issued shares of Glider Ltd. Fluffy Ltd paid $30 000 in cash and 20 000 shares in Fluffy Ltd valued at $3 per share. At this date, the equity of Glider Ltd consisted of $40 000 share capital and $6000 retained earnings. At 1 July … Continue reading “Business combination valuation entries | My Assignment Tutor”
Consolidation On 1 July 2015, Fluffy Ltd acquired all the issued shares of Glider Ltd. Fluffy Ltd paid $30 000 in cash and 20 000 shares in Fluffy Ltd valued at $3 per share. At this date, the equity of Glider Ltd consisted of $40 000 share capital and $6000 retained earnings. At 1 July 2015, all the identifiable assets and liabilities of Glider Ltd were recorded at amounts equal to their fair values except for: Carrying amountFair valuePlant (cost $150 000)$120 000$123 000Patents90 000105 000Inventory18 00022 500 The plant was considered to have a further 5-year life. The patents were sold for $120 000 to an external entity on 18 August 2015. The inventory was all sold by 30 June 2016. Prepare a consolidation adjustments at 30 June 2017. At 1 July 2015: Net fair value of identifiable assets and liabilities of Glider Ltd = $40 000 + $6 000 (equity) + $4 500 (inventory) + $15 000(patents) + $3 000 (plant) = $68500 Consideration transferred = $90 000 Goodwill = $21500 1. Business combination valuation entries Accumulated depreciation Dr 30 000 Plant Cr 27 000 Business combination valuation reserve Cr 3000 Depreciation expense Dr 600 Retained earnings (1/7/16) Dr 600 Accumulated depreciation Cr 1 200 (1/5 x $3000 p.a. for 2 years) Goodwill Dr 21500 Business combination valuation reserve Cr 21500 2. Pre-acquisition entries At 1/7/15: Retained earnings (1/7/15) Dr 6 000 Share capital Dr 40 000 Business combination valuation reserve Dr 44 000 Shares in Glider Ltd Cr 90 000 At 30/6/17: Retained earnings (1/7/16)* Dr 25 500 Share capital Dr 40 000 Business combination valuation reserve Dr 24 500 Shares in Glider Ltd Cr 90 000 (* =6000+15000+4500)
