Part A (5 marks)

On 1 July 2020, Darwin Ltd acquired all of the assets and liabilities of Stockholm Ltd which constitute a business in accordance with AASB 3 Business Combinations. In exchange for these assets and liabilities, Darwin Ltd agreed to pay Stockholm Ltd $90,000 in cash plus 200,000 fully paid shares in Darwin Ltd.

The fair value of the shares of Darwin Ltd at the date of issue was $2.10. Costs of issuing these shares amounted to $3,500. Legal costs associated with the acquisition of Stockholm Ltd amounted to $4,000.

The assets and liabilities of Stockholm Ltd at 1 July 2020 were as follows:

Carrying amount Fair value

Assets

Cash 24,000 24,000

Accounts receivable 31,200 31,200

Inventory 69,600 86,400

Equipment 336,000 312,000

Accumulated depreciation equipment (84,000)

Liabilities

Accounts payable 36,000 36,000

Additional information:

• The assets of Stockholm Ltd did not include a trademark that was valued by Darwin Ltd at $60,000.

• Stockholm Ltd had not recorded a legal claim that could potentially result in the company paying damages to its customers. Darwin Ltd estimated the fair value of this contingent liability to be $20,000.

Required:

Prepare the journal entries in the records of Darwin Ltd at 1 July 2020 to account for the acquisition of Stockholm Ltd. (5 marks)