Question
Application & Analysis Exercise 25.12 (amended) The financial statements of Sicily Ltd at 1 August 2022 contained the following information. Assets $ Equity $ Vehicles
- Application & Analysis Exercise 25.12 (amended)
The financial statements of Sicily Ltd at 1 August 2022 contained the following information.
Assets | $ | Equity | $ |
Vehicles | 90000 | Share capital: 150000 shares | 144000 |
Accumulated depreciation | (13200) | Retained earnings | 76800 |
Delivery trucks | 105000 | Total equity | 220800 |
Accumulated depreciation | (18600) | Liabilities |
|
Machinery | 59400 | Loans | 192000 |
Accumulated depreciation | (9000) | Provisions | 84000 |
Buildings | 144000 | Payables | 126 000 |
Accumulated depreciation | (12000) | Accounts payable | 56400 |
Land | 240000 | Total liabilities | 458400 |
Cash | 6000 |
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Accounts receivable | 36000 |
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Inventories | 51600 |
|
|
Total assets | 679200 | Total equity and liabilities | 679200 |
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|
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An agreement has been made that Al Ltd will take over Sicily Ltd.
Al Ltd will acquire all the assets of Sicily Ltd except for the cash and the motor vehicles.
In exchange, Al Ltd will give the shareholders of Sicily Ltd a block of land valued at $288 000 and a motor vehicle valued at $61 200. These assets are currently held by Al Ltd with land carried at cost of $120 000 while the motor vehicle is carried at $60 000 (cost of $63 000, accumulated depreciation $3 000).
Al Ltd will also provide sufficient additional cash to enable Sicily Ltd to pay off the accounts payable and the liquidation expenses of $3 600.
Al Ltd incurred legal and valuation costs of $6 000 in undertaking the business combination.
The assets and liabilities of Sicily Ltd are recorded at amounts equal to fair value except for the following:
| Fair Value $ |
Land | 300000 |
Buildings | 168000 |
Machinery | 60000 |
Delivery trucks | 90000 |
Inventories | 60000 |
Al Ltd also recognised the brand Sicily that was not recognised in the records of Sicily Ltd as it was an internally developed brand.
It was calculated that this brand had a fair value of $78 000.
Required:
Prepare the journal entries in Al Ltd to record the acquisition of the assets and liabilities of Sicily Ltd.
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