Question
On 1 July 2017Corona Ltd acquired all the share capital in Virus Ltd for $950,000 cash. At the date of acquisition Virus Ltd had a
On 1 July 2017Corona Ltd acquired all the share capital in Virus Ltd for $950,000 cash. At the date of acquisition Virus Ltd had a dividend payable of $40,000. The shares in Virus Ltd were acquired cum-dividend. As at the date of acquisition the balance sheet of Virus Ltd showed the following:
Share capital
$240,000
General reserve
60,000
Retained earnings
100,000
All of the identifiable assets and liabilities of Virus Ltd were recorded at fair value except for the following:
Carrying amount
Fair value
Inventory
$25,000
$35,000
Machinery (Cost $160,000)
50,000
120,000
Patent
Nil
100,000
Impairment losses for goodwill arising on acquisition of Virus Ltd had not been recognised in the prior year's consolidated financial statements. The directors of Corona believe that goodwill has been impaired by $30,000 during the year ended 30 June 2020.
The machinery has a remaining useful life of 4 years.All fair value adjustments are recorded on consolidation.
During the year ended 30 June 2020, Virus Ltd has a dividend paid of 30,000 and a dividend declared of 25,000.
Virus Ltd records a liability for dividend payable on the date of declaration. Corona Ltd recognises dividend revenue on the date of declaration.
Required:
(i)an acquisition analysis. Show all workings.5 MARKS
(ii) all consolidation adjustment entries required to prepare the consolidated financial statements as at 30 June 2020.10 MARKS
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