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Question - Mane Ltd acquired 70% of the ordinary shares of Milner Ltd on 30 June 2020. The cost of acquisition was $2.50 cash per share of Milner plus one share in Mane for every two shares acquired in Milner. Half the cash is payable at acquisition, and the other half is payable in one year's time. Mane's incremental borrowing rate is 5% (discount factor: 0.9524). Shares of Mane and Milner were trading at $5.50 and $3.80 respectively on 30 June 2020. The cost of issuing shares in Mane Ltd was $5,000.
Mane Ltd Balance sheet as at 30 June 2020
Assets
Cash at Bank 500 000
Other assets 400 000
Net assets 900 000
Equity
Share capital 200,000 ordinary shares, fully paid 400 000
Retained profits 500 000
Total Equity 900 000
Milner Ltd Balance sheet as at 30 June 2020
Cash at Bank 150 000
Other assets 270 000
Total assets 420 000
Liabilities
Bank Loan 20 000
Net assets 400 000
Share capital 150,000 ordinary shares, fully paid 150 000
Retained profits 250 000
Total Equity 400 000
Required - Make journal entries to record the acquisition of Milner Ltd by Mane Ltd and the deferred payment. Rounds all journals to the nearest whole number.
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