Question 4-Business Combination-calculations and analytical Accounting by acquirer On 1 July 2021, Mel Ltd took control of the assets and liabilities of Syd Ltd. At this date the statement of financial position of yd Ltd was as follows: Machinery Fixtures & fittings Vehicles Current assets Current liabilities Total net assets Share capital (80 000 shares at $1.00 per share) General reserve Retained earnings Total equity Carrying amount $ 40000 60 000 35 000 10000 (16000) $129000 $ 80000 20000 29 000 $129000 Fair value $ 67 000 68000 35000 12000 (18000) Required Prepare the journal entries in the records of Mel Ltd at 1 July 2021 in each of the following situations, assuming the costs of issuing the shares by Mel Ltd cost $1600. (a) Mel Ltd issued 80 000 shares having a fair value of $2.40 per share in exchange for the net assets of Syd Ltd (b) Mel Ltd issued 80 000 shares having a fair value of $2.00 per share in exchange for the net assets of Syd Ltd. (c) Mel Ltd acquired the shares of Syd Ltd. The agreement was that Mel Ltd would pay the shareholders of Syd Ltd one share in Mel Ltd for every two shares held in Syd Ltd plus $1 in cash for each share held in Syd Ltd. Shares in Mel Ltd have a fair value of $1.80 per share.
Question 4-Business Combination-calculations and analytical Accounting by acquirer On 1 July 2021, Mel Ltd took control of the assets and liabilities of Syd Ltd. At this date the statement of financial position of yd Ltd was as follows: Machinery Fixtures & fittings Vehicles Current assets Current liabilities Total net assets Share capital (80 000 shares at $1.00 per share) General reserve Retained earnings Total equity Carrying amount $ 40000 60 000 35 000 10000 (16000) $129000 $ 80000 20000 29 000 $129000 Fair value $ 67 000 68000 35000 12000 (18000) Required Prepare the journal entries in the records of Mel Ltd at 1 July 2021 in each of the following situations, assuming the costs of issuing the shares by Mel Ltd cost $1600. (a) Mel Ltd issued 80 000 shares having a fair value of $2.40 per share in exchange for the net assets of Syd Ltd (b) Mel Ltd issued 80 000 shares having a fair value of $2.00 per share in exchange for the net assets of Syd Ltd. (c) Mel Ltd acquired the shares of Syd Ltd. The agreement was that Mel Ltd would pay the shareholders of Syd Ltd one share in Mel Ltd for every two shares held in Syd Ltd plus $1 in cash for each share held in Syd Ltd. Shares in Mel Ltd have a fair value of $1.80 per share.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Acquisition of net assets of Syd Ltd: FV of a Mel Ltd shares is $2.00:
Acquisition analysis:
Journal entries:
c. Acquisition of shares in Syd Ltd:
Consideration transferred:
Journal entries in Mel Ltd:
Transcribed Image Text:Question 4-Business Combination-calculations and analytical
Accounting by acquirer
On 1 July 2021, Mel Ltd took control of the assets and liabilities of Syd Ltd. At this date
the statement of financial position of yd Ltd was as follows:
Machinery
Fixtures & fittings
Vehicles
Current assets
Current liabilities
Total net assets
Share capital (80 000 shares at $1.00 per share)
General reserve
Retained earnings
Total equity
Carrying amount
$ 40000
60 000
35000
10000
(16000)
$129000
$ 80000
20000
29 000
$129000
Fair value
$ 67.000
68 000
35000
12 000
(18000)
Required
Prepare the journal entries in the records of Mel Ltd at 1 July 2021 in each of the following
situations, assuming the costs of issuing the shares by Mel Ltd cost $1600.
(a) Mel Ltd issued 80 000 shares having a fair value of $2.40 per share in exchange for the net
assets of Syd Ltd
(b) Mel Ltd issued 80 000 shares having a fair value of $2.00 per share in exchange for the net
assets of Syd Ltd.
(c) Mel Ltd acquired the shares of Syd Ltd. The agreement was that Mel Ltd would pay the
shareholders of Syd Ltd one share in Mel Ltd for every two shares held in Syd Ltd plus $1
in cash for each share held in Syd Ltd. Shares in Mel Ltd have a fair value of $1.80 per
share.
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