Reference no: EM132652494

Problem - On 1 July 2020, the financial position of Loki Lid was as follows:

	Carrying amount	Fair value
Assets
Cash	$200,000
Accounts receivable	800,000	800,000
Plant	2,100,000	1,600,000
Accumulated depreciation - plant	(600,000)
Fixtures & fittings	900,000	850,000
Accumulated depreciation - fixtures & fittings	100,000
Land	1,100,000	1,500,000
Vehicles	800,000	610,000
Accumulated depreciation - vehicles	(200,000)
Total assets	$5,000,000
Equity
Share capital - 100,000 shares	2,500,000
Retained earnings	2,000,000
Total equity	4,500,000
Liabilities
Accounts payable	100,000	100,000
Loans	400,000	400,000
Total liabilities	500,000
Total equity and liabilities	$5,000,000

Thor Ltd acquired all the assets and assumed all the liabilities of Loki Ltd on 1 July 2020. In exchange, Thor Ltd agreed to:

Issue 5 Thor Ltd shares for every Loki Ltd share held. Thor Ltd shares were assessed to have a fair value of $8 per share. Costs of share issue were $600.

Transfer a patent to the former shareholders of Loki Ltd; the patent had been internally generated by Thor Ltd and was carried at $400 000. It was considered to have a fair value of $1 200 000.

Pay cash of $2.00 per share to the former shareholders of Loki Ltd for each share held in Loki Ltd.

At 30 June 2020, Loki Ltd reported a contingent liability relating to a guarantee given to another entity. Loki 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 $20 000.

Thor Ltd incurred $9 000 in costs in relation to accounting and legal fees in relation to its acquisition of Loki Ltd.

Required - Prepare the journal entries in the records of Thor Ltd in relation to its acquisition of Loki Ltd at 1 July 2020.