A Ltd signed a legal agreement in terms of which the company would obtain control over the majority of the assets and liabilities of B Ltd on 1 January 2020, subject to approval by the South African Competition Commission. Even though the Commission has rejected similar transactions in the past, the directors of A Ltd were of the opinion that the Commission’s approval was a mere formality and therefore they believed that the assets and liabilities of B Ltd should be included in the financial statements of Pluto from 1 January 2020. The final approval of the Competition Commission was however only obtained on 1 February 2021. The assets and liabilities taken over in terms of the transaction represent a “business” as defined in IFRS 3: Business Combinations.

The following assets and liabilities were taken over in terms of the above agreement: Note Carrying amounts 01/02/2021 R Fair values 01/02/2021 R Assets Land and buildings 3 600 000 3 100 000 Machinery 175 000 333 000 Intangible assets 1 20 000 25 000 Receivables 300 000 290 000 Inventories 450 000 500 000 R4 545 000 Equity and liabilities Share capital 2 000 000 - Retained earnings 1 885 000 - Long-term loan 380 000 380 000 Payables 280 000 280 000 4 545 000

Additional information:

1. B Ltd owns its own brand name for the insulated water bottles that it manufactures; this intangible asset was recognised at a cost of R20 000 and has an indefinite useful life. B Ltd Limited was also involved in researching and developing a new type of bottle that can keep the mineral water cooler for longer. The research and development costs of R380 000 did not meet the requirements of IAS 38 Intangible assets and were therefore not capitalised. Due to the acquisition of B Ltd by A Ltd the research and development costs may now be recognised and the fair value of the research and development costs was determined at R600 000 on 1 February 2021. The useful life of the research and development intangible asset is 10 years.

2. At the acquisition date, B Ltd was being sued for environmental damage (that is governed by legislation) for an amount of R3 million. Although the damage has indeed been done to the environment, the legal advisors of B Ltd are of the opinion that there is only a 35% chance that the claimant will be successful with its case and therefore do not view the court case as being probable to succeed, thus it was disclosed as a contingent liability. The fair value of the claim taking into account all possible outcomes was R180 000 on 1 January 2020 and 1 February 2021 respectively.

3. The Acquisition agreement determined the following: The purchase consideration for B Ltd is to be settled as follows: • An amount of R1 000 000 is to be paid in cash on the date that control is obtained. • The issue of 200 000 of A Ltd Limited shares at a fair value of R10 per share on 1 February 2021 • An amount of R702 464 is to be paid on 31 January 2024 if. The present value of this amount is R500 000. • A Ltd will transfer vehicles with a carrying amount of R750 000 (cost R900 000 and accumulated depreciation R150 000). The fair value of the vehicles was R950 000 on the acquisition date.

REQUIRED: 2.1 Discuss with supporting reasons, what the date of acquisition of B Ltd by A Ltd is in the scenario above. (4) 2.2 Calculate the consideration transferred for the assets and liabilities taken over from B Ltd in the accounting records of A Ltd on the acquisition date. (5) 2.3 Provide the main acquisition journal entry to recognise the acquisition of the assets and liabilities in the accounting records of A Ltd on the acquisition date. (16)