QUESTION TWO(6 Marks)

On 1 July 2020, Sydney Ltd took control of the assets and liabilities of Perth Ltd. At this date the statement of financial position of Perth Ltd was as follows:

Carrying amountFair value

Machinery$40,000$67,000

Fixtures & fittings60,00068,000

Vehicles35,00035,000

Current assets10,00012,000

Current liabilities(16,000)(18,000)

Total net assets$129,000

Share capital (80 000 shares at $1.00 per share)80,000

General reserve20,000

Retained earnings29,000

Total equity$129,000

Prepare the journal entries in the records of Sydney Ltd at 1 July 2020 in the following situation, assuming the costs of issuing the shares by Sydney Ltd cost $1,600.

a.Sydney Ltd issued 80,000 shares having a fair value of $2.40 per share in exchange for the net assets of Perth Ltd