The financial statements of a ltd and b ltd at 1 july 2020 are as follows. A Ltd B Ltd cash 25000 plant 60000 35000 Accumulated depreciation (15000) (120000) inventories 12000 24000 Account receivable 20000 36000 goodwill 0 10000 Total assets 102600 117000 Account payable 1800 17000 Net assets 100800 100000 Share capital Retained earnings 50000 81000 General reserve 8800 4000 Total equity 2000 15000 100800 100000 All the assets and liabilities of B Ltd were recorded for fair value except for the following assets. Plant 47000(Fair value) Inventory 22000(Fair value) A Ltd agreed to pay B Ltd $6000 in cash plus 16000 fully paid shares having a fair value of $7.5 per share. The business combination was completed and B ltd liquidation. Cash of liquidation amounted to $1200. A Ltd incurred legal and accounting costs amounted to $482 in relation to the business combination. Cost of issuing the A Ltd shares were $330. On 30 June 2020 B Ltd had reported a contingent liability relating to the guarantee given by that company to another entity , B Ltd did not record the guarantee as a liability because of the difficulty of measuring the liability. The fair value of the contingent liability was assessed as $15,000. Required: Prepare the acquisition analysis for the business combination.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The financial statements of a ltd and b ltd at 1 july 2020 are as follows.
|
|
A Ltd |
B Ltd |
|
cash |
25000 |
|
|
plant |
60000 |
35000 |
|
|
(15000) |
(120000) |
|
inventories |
12000 |
24000 |
|
Account receivable |
20000 |
36000 |
|
|
0 |
10000 |
|
Total assets |
102600 |
117000 |
|
Account payable |
1800 |
17000 |
|
Net assets |
100800 |
100000 |
|
Share capital |
|
|
|
|
50000 |
81000 |
|
General reserve |
8800 |
4000 |
|
Total equity |
2000 |
15000 |
|
|
100800 |
100000 |
All the assets and liabilities of B Ltd were recorded for fair value except for the following assets.
Plant 47000(Fair value)
Inventory 22000(Fair value)
A Ltd agreed to pay B Ltd $6000 in cash plus 16000 fully paid shares having a fair value of $7.5 per share. The business combination was completed and B ltd liquidation.
Cash of liquidation amounted to $1200.
A Ltd incurred legal and accounting costs amounted to $482 in relation to the business combination.
Cost of issuing the A Ltd shares were $330.
On 30 June 2020 B Ltd had reported a
Required:
Prepare the acquisition analysis for the business combination.
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