On December 1, 2013, Meeru Inc. acquired all the assets and liabilities of Dory Ltd., with Meeru issuing 100,000 shares to acquire these net assets. The fair values of Dory’s assets and liabilities at this date were:
Cash.............. $ 50,000
Furniture and fixtures........ 20,000
Accounts receivable.......... 5,000
Property, plant, and equipment..... 125,000
Accounts payable .......... 15,000
Current tax liability .......... 8,000
Provision for vacation pay ...... 2,000
The financial year for Meeru is January to December.
Required
Each transaction should be considered separately.
(a) Prepare the journal entries for Meeru to record the business combination at December 1, 2013, assuming the fair value of each Meeru share at acquisition date is $1.90. Prepare any note disclosures for Meeru at December 31, 2013, in relation to the business combination.
(b) Assume the fair value of each Meeru share at acquisition date is $1.90. At acquisition date, the acquirer could only determine a provisional fair value for the plant. On March 1, 2014, Meeru received the final value from the independent appraisal, the fair value at acquisition date being $131,000. Assuming the plant had a further five-year life from the acquisition date, explain how Meeru will account for the business combination both at acquisition date and in the financial statements for 2014.
(c) Prepare the journal entries for Meeru to record the business combination at December 1, 2013, assuming the fair value of each Meeru share at acquisition date is $1.70.