Question
please answer this Salad Ltd acquired all the net assets of an existing business, Lettuce Ltd on 1 July 2020. The statements of financial position
please answer this
Salad Ltd acquired all the net assets of an existing business, Lettuce Ltd on 1 July 2020. The statements of financial position of the two companies immediately prior to the acquisition were as follows:
| Salad Ltd | Lettuce Ltd | |
Cash |
| $4,200 | $2,000 |
Accounts receivable |
| 30,000 | 16,500 |
Freehold land |
| 265,000 | 100,000 |
Building (net) |
| 35,000 | 28,000 |
Cultivation equipment (net) | 69,000 | 46,000 | |
Irrigation equipment |
| 18,000 | 21,000 |
Delivery trucks |
| 46,000 | 36,000 |
Motor vehicles |
| 30,000 | 32,000 |
|
| 497,200 | 281,500 |
Accounts payable |
| 29,000 | 24,500 |
Loan - Bank of NSW |
| 155,000 | 79,000 |
Loan - Bernard Bros |
| 35,000 | 34,000 |
Loan - Golds Corp. |
| 72,000 | 52,500 |
Share capital | 110,000 shares | 110,000 | - |
| 60,000 shares | - | 60,000 |
Reserves |
| 28,500 | - |
Retained earnings |
| 67,700 | 31,500 |
|
| 497,200 | 281,500 |
All of the assets of Lettuce Ltd are recorded at fair value, with the exception of:
| Fair value |
Freehold land* | 120,000 |
Buildings | 40,000 |
Cultivation equipment | 40,000 |
Motor vehicle | 34,000 |
*Fair value excluding Lettuces vacant land.
The terms of the acquisition are as follows:
- Salad Ltd is to acquire all of the assets, except cash, delivery trucks and motor vehicles of Lettuce Ltd and will assume all of the liabilities except accounts payable.
- Salad Ltd is to give the share-holders of Lettuce Ltd a block of vacant freehold land, two delivery vehicles and sufficient additional cash to enable the company to pay of the accounts payable and then liquidation costs of $1,600.
- On the liquidation of Lettuce Ltd, the former directors are to receive the land, motor
vehicles and the delivery trucks. The land and vehicles had the following values at 1 July 2020:
| Carrying amount | Fair Value |
Freehold Land | $50,000 | $120,000 |
Delivery Trucks | 30,000 | 27,000 |
Required:
- Prepare the acquisition analysis in relation to the acquisition. (2 Marks)
- Prepare the journal entries in Salad Ltd to record the business combination. (4 Marks)
- Prepare the statement of financial position of Salad Ltd immediately subsequent to the acquisition.
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