Question

Question 1 King Ltd acquired 100% of the share capital of Sing Ltd on 1 July 2015, for $356,000. At the acquisition date, the equity of Sing Ltd comprise of the following:

$ Share capital 200,000

Retained earnings 80,000

Total    280,000

The identifiable net assets of Sing Ltd were recorded at fair value at the date of acquisition, except for inventory that had a fair value which was $2,000 higher than its carrying amount, and an item of plant (cost $25,000 and accumulated depreciation of $15,000) that had a fair value of $19,000. This plant had a remaining useful life of 6 years, with no residual value. All of the inventory was sold by 30 June 2016, but the plant is still owned as at 30 June 2020. In addition to this, Sing Ltd reported a contingent liability of $15,000 on the acquisition date and King Ltd decided the fair value of that should be $7,000. Required:

Prepare the business combination valuation entries for the plant including the depreciation adjustment for the year ended 30 June 2020. Ignore the tax effect and narrations are not required.

Answer 1

Particulars	Amounts
Share Capital	2,00,000.00
Retained Earnings	80,000.00
Total Net Assets	2,80,000.00
Difference in fair value of Inventory	2,000.00
Difference in fair value of Plant	9,000.00
Contingent Liability	(7,000.00)
Net Assets at Fair Value	2,84,000.00
Purchase Consideration	3,56,000.00
Goodwill Paid	72,000.00

1. Dr Inventory 2,000

Cr Retained Earnings 2,000

2. Dr Plant 9,000

Cr Retained Earnings 9,000

3. Dr Retained Earning 7,000

Cr Contingent Liability 7,000

4. Dr Investment in Sing Ltd 2,84,000

Dr Goodwill 72,000

Cr Cash / Bank 3,56,000