Reference no: EM133042128
Question - On 1 July 2018, Adams Ltd acquired 80% of the share capital of Quantim Ltd for $500,000. At this date, the financial statements of Quantim Ltd included the following items:
Retained Earnings 180,000
Share Capital 280,000
Other Components of Equity (OCE) 98,000
At 1 July 2018 all of the identifiable net assets of Quantim Ltd were recorded at fair value except for the following assets:
|
|
Carrying amount
|
Fair value
|
|
Inventory
|
36,000
|
42,000
|
|
Patent
|
60,000
|
85,000
|
Adjustments for differences between carrying amounts and fair values of assets at acquisition date are made on consolidation. During the year ended 30 June 2019, all inventory on hand at 1 July 2018 was sold. The patent which was considered to have an indefinite life was impairment tested in June 2019 but was not impaired.
On 1 June 2019, Quantim Ltd transferred $25,000 from Other Components of Equity (pre-acquisition) to Retained Earnings. The income tax rate is 30% and the partial goodwill method is used by Adams Ltd.
Required -
1. Prepare the acquisition analysis at 1 July 2018.
2. Prepare the business combination valuation entries and pre-acquisition entry at 30 June 2019. Note: NCI allocation journals are not required.
3. If Adams Ltd purchased 49% of the shares in Quantim Ltd on 1 July 2018, how would your answer to the above change? Briefly explain the relevant considerations and adjustments in words (no calculations required).