accy200 topic 10 business combinations
Tutorial 10
Chapter 12 – Business Combinations
Exercise 12.2 Accounting by an acquirer
GABO LTD – DUCK LTD
A. Acquisition analysis:
Fair value of identifiable assets and liabilities acquired: Current assets $980 000 Non-current assets 4 220 000 5 200 000 Liabilities 500 000 $4 700 000
Consideration transferred: Shares: 100 000 x 10 x $10 $10 000 000 Patent 1 000 000 Cash: 100 000 x $5.20 520 000 $11 520 000
Goodwill = $11 520 000 - $4 700 000 = $6 820 000
B. Journal entries: Gabo Ltd
Patent Dr 650 000 Gain Cr 650 000 (Remeasurement as part of consideration transferred in a business combination)
Current assets Dr 980 000 Non-current assets Dr 4 220 000 Goodwill Dr 6 820 000 Liabilities Cr 500 000 Share capital Cr 10 000 000 Patent Cr 1 000 000 Cash Cr 520 000 (Acquisition of Duck Ltd)
Acquisition-related expenses Dr 10 000 Cash Cr 10 000 (Payment of directly attributable costs)
Share capital Dr 500 Cash Cr 500 (Costs of issuing shares)
Exercise 12.8 Liquidation of acquiree, accounting by acquirer
BATHURST LTD – CROKER LTD
Acquisition analysis Consideration transferred = $20 000 (cash) + $40 000 (shares: 16 000 x $2.50) = $60 000
A. Ledger Accounts – Croker Ltd
Liquidation
$
$
Inventory
26 000
Accounts payable
20 000
Accounts receivable
20 000
Goodwill
10 000
Receivable - Bathurst Ltd
60 000
Cost of liquidation
1 000
Balance b/d
23 000
Retained earnings
80 000
80 000
24 000
Balance c/d
23 000
Shareholders’ distribution
1 000
24 000
24 000
Shareholders’ Distribution
$
$
Liquidation
1 000
Share capital
60 000
Distribution: cash
19 000
Shares in Bathurst Ltd
40 000
60 000
60 000
Exercise 12.8 (cont’d)
B. Journal entries: Bathurst Ltd
Net fair value of identifiable assets and liabilities acquired:
Plant $30 000 Inventory 28 000
Chapter 12 – Business Combinations
Exercise 12.2 Accounting by an acquirer
GABO LTD – DUCK LTD
A. Acquisition analysis:
Fair value of identifiable assets and liabilities acquired: Current assets $980 000 Non-current assets 4 220 000 5 200 000 Liabilities 500 000 $4 700 000
Consideration transferred: Shares: 100 000 x 10 x $10 $10 000 000 Patent 1 000 000 Cash: 100 000 x $5.20 520 000 $11 520 000
Goodwill = $11 520 000 - $4 700 000 = $6 820 000
B. Journal entries: Gabo Ltd
Patent Dr 650 000 Gain Cr 650 000 (Remeasurement as part of consideration transferred in a business combination)
Current assets Dr 980 000 Non-current assets Dr 4 220 000 Goodwill Dr 6 820 000 Liabilities Cr 500 000 Share capital Cr 10 000 000 Patent Cr 1 000 000 Cash Cr 520 000 (Acquisition of Duck Ltd)
Acquisition-related expenses Dr 10 000 Cash Cr 10 000 (Payment of directly attributable costs)
Share capital Dr 500 Cash Cr 500 (Costs of issuing shares)
Exercise 12.8 Liquidation of acquiree, accounting by acquirer
BATHURST LTD – CROKER LTD
Acquisition analysis Consideration transferred = $20 000 (cash) + $40 000 (shares: 16 000 x $2.50) = $60 000
A. Ledger Accounts – Croker Ltd
Liquidation
$
$
Inventory
26 000
Accounts payable
20 000
Accounts receivable
20 000
Goodwill
10 000
Receivable - Bathurst Ltd
60 000
Cost of liquidation
1 000
Balance b/d
23 000
Retained earnings
80 000
80 000
24 000
Balance c/d
23 000
Shareholders’ distribution
1 000
24 000
24 000
Shareholders’ Distribution
$
$
Liquidation
1 000
Share capital
60 000
Distribution: cash
19 000
Shares in Bathurst Ltd
40 000
60 000
60 000
Exercise 12.8 (cont’d)
B. Journal entries: Bathurst Ltd
Net fair value of identifiable assets and liabilities acquired:
Plant $30 000 Inventory 28 000