Question
Mane Ltd acquired 70% of the ordinary shares of Milner Ltd on 30 June 2020. The cost of acquisition was $2.50 cash per share of
Mane Ltd acquired 70% of the ordinary shares of Milner Ltd on 30 June 2020. The cost of acquisition was $2.50 cash per share of Milner plus one share in Mane for every two shares acquired in Milner. Half the cash is payable at acquisition, and the other half is payable in one year's time. Mane's incremental borrowing rate is 5% (discount factor: 0.9524). Shares of Mane and Milner were trading at $5.50 and $3.80 respectively on 30 June 2020. The cost of issuing shares in Mane Ltd was $5,000.
Mane Ltd
Balance sheet as at 30 June 2020
$
Assets
Cash at Bank 500 000
Other assets 400 000
Net assets 900 000
Equity
Share capital 200,000 ordinary shares, fully paid 400 000
Retained profits 500 000
Total Equity 900 000
Milner Ltd
Balance sheet as at 30 June 2020
$
Assets
Cash at Bank 150 000
Other assets 270 000
Total assets 420 000
Liabilities
Bank Loan 20 000
Net assets 400 000
Equity
Share capital
150,000 ordinary shares, fully paid 150 000
Retained profits 250 000
Total Equity 400 000
Required:
Prepare journal entries to record the acquisition of Milner Ltd by Mane Ltd and the deferred payment. Rounds all journals to the nearest whole number
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Accounting What the Numbers Mean
Authors: David Marshall, Wayne McManus, Daniel Viele
12th edition
007802529X, 1259969525, 978-1260565492
