Question
David Ltd, a supplier of snooker equipment, agreed to acquire the business of a rival company, Tennant Ltd, taking over all assets and liabilities as
David Ltd, a supplier of snooker equipment, agreed to acquire the business of a rival company, Tennant Ltd, taking over all assets and liabilities as at 1 June 2020.
The price agreed on was $60,000, payable $20,000 in cash and the balance by the issue to the selling company of 16,000 fully paid shares in David Ltd, these shares having a fair value of $2.50 per share.
The trial balances of the two companies as at 1 June 2020 were as follows.
All the identifiable net assets of Tennant Ltd were recorded by Tennant Ltd at fair value except for the inventories, which were considered to be worth $28 000 (assume no tax effect). The plant had an expected remaining life of 5 years.
The business combination was completed and Tennant Ltd went into liquidation. David Ltd incurred incidental costs of $500 in relation to the acquisition. Costs of issuing shares in David Ltd were $400.
Required:
1.Prepare in good format the acquisition analysis. Include details of your calculations.
2.Prepare the journal entries in the records of David Ltd to record the business combination.
3.Show the statement of financial position of David Ltd after completion of the business combination.
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