Question
On 30 June 2020 River Ltd acquired 70% shares in Tributary Ltd for $90,000. The statements of financial position of both companies at that date
- On 30 June 2020 River Ltd acquired 70% shares in Tributary Ltd for $90,000. The statements of financial position of both companies at that date (but prior to acquisition) were as follows:
The notes to Tributary Ltds financial statements reported a contingent liability relating to a loan guarantee. Although a present obligation existed, Tributary Ltd did not recognise a liability because of the difficulty of measuring the ultimate amount to be paid. River Ltd assessed the fair values of the recorded identifiable assets of Tributary Ltd as:
Tributary Ltd had also been undertaking research into new manufacturing equipment and had expensed a total of $15,000 research costs. River Ltd assessed that the fair value of the in-process research was $6,000. All liabilities were recorded at fair value and the contingent liability was assessed to have a fair value of $2,500. The tax rate is 28%.
Required:
Prepare the business combination valuation entries. (6 marks) Prepare the pre-acquisition entry. (2 mark) |
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