Company Accounting Expert Answer
Acquisition of net assets of Southern Pty Ltd: the fair value of each Snap Ltd share is $2.16.
- Net fair value of identifiable assets and liabilities acquired:
| Account Receivable | 54800 |
| Inventory | 28000 |
| Plant | 112000 |
| Land | 35800 |
| Brand “41 South” | 12000 |
| $242600 |
- Consideration transferred:
| Value before Acquisition | Value after Acquisition | |||
| Shareholders Shares | ‘A’ shares of Southern Pty Ltd shares in Snap Ltd (2/3) | 60000 | 40000*$2.16 | $86400 |
| Artworks | Owner of B ordinary shareholders | 40000 | 58000 | 58000 |
| 144400 | ||||
| Creditors | ||||
| Cash: | Account payable | 34800 | ||
| Loans | 55200 | |||
| Interest on loan | 22800 | |||
| Annual leave | 13000 | |||
| Total cash required | 125800 | |||
| Less: cash already held | (26000) | 99800 | ||
| $244200 |
- Goodwill:
$244200 – $242600 = $1600
- Below are the Genera Journal entries in the records of Snap Ltd at 1 April 2020 to record the business combination:
| Snap Ltd | |||
| General Journal | |||
| Date | Account Title and Explanation | Debit | Credit |
| 01/04 | Artworks | 18000 | |
| Gain | 18000 | ||
| (Gain on re-measurement of assets used as part of consideration in acquisition of Southern Pty Ltd | |||
| 01/04 | Account receivable | 54800 | |
| Inventory | 28000 | ||
| Plant | 112000 | ||
| Land | 35800 | ||
| Brand | 12000 | ||
| Goodwill | 1600 | ||
| Payable to Southern Pty Ltd | 99800 | ||
| Share Capital | 86400 | ||
| Artworks | 58000 | ||
| (Acquisition of Southern Pty Ltd) | |||
| 01/04 | Payable to Southern Pty Ltd | 99800 | |
| Cash | 99800 | ||
| (Payment of consideration) | |||
| 01/04 | Acquisition related expenses | 1300 | |
| Cash | 1300 | ||
| (Payment of acquisition related costs | |||
| 01/04 | Share Capital | 700 | |
| Cash | 700 | ||
| (Payment of share issue costs) | |||
