Reference no: EM132668627
Question - Snap Ltd is a seafood business with headquarters in Apollo Bay. Snap Ltd products include many varieties of seafood but one item lacking in its product range is Tasmanian Atlantic Salmon. The board of Snap Ltd decided to investigate a takeover of a Tasmanian company, Southern Pty Ltd, whose major product is the packaging of Tasmanian Atlantic Salmon. Strategically, Southern Pty Ltd would be a good fit with Snap Ltd as Snap owns two processing factories in Devonport, one of which is under-utilised. If Southern were acquired, then Snap would liquidate the company and transfer all the processing work to one of the Devonport factories.
The financial statements of Southern Pty Ltd at 1 September 2020 showed the following information:
Plant $143 600
Accumulated depreciation - plant (42 000)
Land 40 800
Cash 6 000
Accounts receivable 64 800
Inventory 17 200
Total assets 230 400
Accounts payable 24 300
Loans 65 700
Total liabilities 90 000
Share capital - 60 000 A ordinary shares 60 000
Share capital - 40 000 B ordinary shares 40 000
Retained earnings 40 400
Total equity 140 400
All the assets and liabilities of Southern Pty Ltd were recorded at amounts equal to fair value except for:
Fair Value
Plant 112 000
Land 135 800
Inventory 28 000
1. Southern Pty Ltd also had a brand '41 South' that was not recorded by the company because it had been internally generated. It was valued at $42 000. Southern Pty Ltd had not recorded both the interest accrued on the loans amounting to $12 800 and annual leave entitlements of $23 000.
2. Snap Ltd decided to acquire all the assets of Southern Pty Ltd except for the cash. In exchange for these assets, Snap Pty Ltd agreed to provide:
Two shares in Snap Ltd for every three A ordinary shares held in Southern Pty Ltd. The fair value of each Snap Ltd share was agreed to be $3.16.
Artworks to the owners of the B ordinary shares held in Southern Pty Ltd. (These artworks were held in the records of Snap Ltd at $40 000 and valued at $68 000.)
Sufficient additional cash to enable Southern Pty Ltd to pay off its liabilities.
3. The business combination occurred on 1 September 2020. Legal and accounting costs incurred by Snap Ltd in undertaking this business combination amounted to $5 300. Costs to issue the shares to the A ordinary shareholders of Southern Pty Ltd were $1 500.
Required - Prepare the journal entries in the records of Snap Ltd at 1 September 2020 to record the business combination (dates and narrations are required). Show all calculations.