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Question - On 1 July 2020, B Ltd acquired all the assets and liabilities of P Ltd. In exchange for these assets and liabilities, Brad Ltd issued 100,000 shares that at date of issue had a fair value of $4.50 per share. Costs of issuing these shares amounted to $2,000. Legal costs associated with the acquisition of Pitt Ltd amounted to $3,200.
The asset and liabilities of P Ltd on 1 July 2019 were as follows (Extract):
Carrying Amount
Fair Value
Assets
Cash
$3,000
-
Account Receivable
12,000
$12,000
Inventories
63,000
69,000
Plant and equipment
330,000
225,000
Accumulated Depreciation - plant and Equipment
(100,000)
Land
200,000
280,000
Liabilities
Accounts payable
22,000
Debentures
68,000
Required -
a) Prepare the acquisition analysis on 1 July 2020 for the acquisition of P Ltd by B Ltd. Assume that at 30 June 2020, P Ltd had reported a contingent liability relating to a guarantee given by that company to another entity. P Ltd did not record the guarantee as a liability because of the difficulty of measuring the liability. The fair value of this contingent liability was assessed as $14,000.
b) Prepare the journal entries in the records of B Ltd on 1 July 2020.
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