Problem - Russell Ltd acquired all the assets and liabilities of Davies Ltd on 1 July 2018. At this date, the assets and liabilities of Davies Ltd consisted of:
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Carrying amount
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Fair value
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Current assets
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$1 000 000
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$980 000
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Non-current assets
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4 000 000
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4 220 000
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|
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5 000 000
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5 200 000
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Liabilities
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500 000
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500 000
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$4 500 000
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$4 700 000
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Share capital - 100 000 shares
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$3 000 000
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$ 4 700 000
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Reserves
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1 500 000
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$4 500 000
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In exchange for these net assets, Russell Ltd agreed to:
- issue 10 Russell Ltd shares for every Davies Ltd share - Russell Ltd shares were considered to have a fair value of $10 per share; costs of share issue were $500
- transfer a patent to the former shareholders of Davies Ltd - the patent was carried in the records of Russell Ltd at $350 000 but was considered to have a fair value of $1 million
- pay $5.20 per share in cash to each of the former shareholders of Davies Ltd.
- Russell Ltd incurred $10 000 in costs associated with the acquisition of these net assets.
Required -
1. Using excel prepare the acquisition analysis.
2. Prepare the journal entries in Russell Ltd to record the acquisition at 1 July 2018.