P.3.5 Different forms of Business Combination
P3.5 Different forms of business combination P Co is keen to acquire the business of S Co on 1 January 20xl and it can do so in one of two ways. P Co will issue shares with fair value of $700,000 as settlement for the acquisition under each alternative. (a) Alternative 1: P Co acquires 100% of the net assets (including cash) of S Co through a purchase agreement with S Co. (b) Alternative 2: P Co acquires 100% of the ownership interest of S Co from the owners of S Co. Details of the net assets of P Co and S Co on 1 January 20x1 are shown below. Tax rate is 20%. Recognize the deferred tax effects, if any, on the difference between the fair value and the book value of identifiable net assets. s Co Fair value S Co Book value AL ACCOUNTING 154 ADVANCED FINANCIAL ACCOUNTING $ 30,000 Book value $300,000 $ 700,000 420,000 130,000 200,000 Intangible asset from contracts.... Investment in S Co........ Fixed assets Inventory ......... Accounts receivable..... 350,000 60,000 90,000 20,000 (80,000) $470,000 20,000 (80,000) $380,000 Cash ... 40,000 100,000 100,000 (150,000) $1,400,000 5019 22 $200,000 $ 700,000 700,000 $1,400,000 Accounts payable... Net assets.......... $200,000 01q lo villidsdors 180,0001q lo vili $380,000 to 16 $470,000 TOP511050 Share capital.. Retained earnings..... Equity... sets of S Co by P Coin show the group statement of bliud to TWO of bonen) 2 1. Under Alternative 1. show the journal entry to record the purchase of net assets of S Co by D its separate financial statements on 1 January 20x1. 2. Under Alternative 2. show the journal entry to record the acquisition in P Co's separate fi statements on 1 January 20x1. 3. Under Alternative 2, complete the consolidation worksheet below to show the group sta financial position on 1 January 20x1. Book value SCO Book value Dr C Total Investment in S Co... Fixed assets... Inventory Accounts receivable. Cash. Accounts payable ...... Net assets............. $ 700,000 420,000 130,000 200,000 100,000 (150,000) $1,400,000 $300,000 097 Dolomino 40,000 IXOS Todit 100,000 20,000 (80,000) $380,000 5 and 1 mol nord $200,000 180,000 $380,000 Share capital.... Retained earnings.... Equity Doce $ 700,000 700,000 $1,400,000 P3.5 Different forms of business combination P Co is keen to acquire the business of S Co on 1 January 20xl and it can do so in one of two ways. P Co will issue shares with fair value of $700,000 as settlement for the acquisition under each alternative. (a) Alternative 1: P Co acquires 100% of the net assets (including cash) of S Co through a purchase agreement with S Co. (b) Alternative 2: P Co acquires 100% of the ownership interest of S Co from the owners of S Co. Details of the net assets of P Co and S Co on 1 January 20x1 are shown below. Tax rate is 20%. Recognize the deferred tax effects, if any, on the difference between the fair value and the book value of identifiable net assets. s Co Fair value S Co Book value AL ACCOUNTING 154 ADVANCED FINANCIAL ACCOUNTING $ 30,000 Book value $300,000 $ 700,000 420,000 130,000 200,000 Intangible asset from contracts.... Investment in S Co........ Fixed assets Inventory ......... Accounts receivable..... 350,000 60,000 90,000 20,000 (80,000) $470,000 20,000 (80,000) $380,000 Cash ... 40,000 100,000 100,000 (150,000) $1,400,000 5019 22 $200,000 $ 700,000 700,000 $1,400,000 Accounts payable... Net assets.......... $200,000 01q lo villidsdors 180,0001q lo vili $380,000 to 16 $470,000 TOP511050 Share capital.. Retained earnings..... Equity... sets of S Co by P Coin show the group statement of bliud to TWO of bonen) 2 1. Under Alternative 1. show the journal entry to record the purchase of net assets of S Co by D its separate financial statements on 1 January 20x1. 2. Under Alternative 2. show the journal entry to record the acquisition in P Co's separate fi statements on 1 January 20x1. 3. Under Alternative 2, complete the consolidation worksheet below to show the group sta financial position on 1 January 20x1. Book value SCO Book value Dr C Total Investment in S Co... Fixed assets... Inventory Accounts receivable. Cash. Accounts payable ...... Net assets............. $ 700,000 420,000 130,000 200,000 100,000 (150,000) $1,400,000 $300,000 097 Dolomino 40,000 IXOS Todit 100,000 20,000 (80,000) $380,000 5 and 1 mol nord $200,000 180,000 $380,000 Share capital.... Retained earnings.... Equity Doce $ 700,000 700,000 $1,400,000
