Question 7.3
Accounting by acquirer
On 1 July 2021, Angelina Ltd took control of the assets and liabilities of Jolie Ltd. At this date the statement of financial position of Jolie Ltd was as follows:
Required
Prepare the journal entries in the records of Angelina Ltd at 1 July 2021 in each of the following situations, assuming the costs of issuing the shares by Angelina Ltd cost $1600.
(a) Angelina Ltd issued 80 000 shares having a fair value of $2.40 per share in exchange for the net assets of Jolie Ltd
(b) Angelina Ltd issued 80 000 shares having a fair value of $2.00 per share in exchange for the net assets of Jolie Ltd.
(c) Angelina Ltd acquired the shares of Jolie Ltd. The agreement was that Angelina Ltd would pay the shareholders of Jolie Ltd one share in Angelina Ltd for every two shares held in Jolie Ltd plus $1 in cash for each share held in Jolie Ltd. Shares in Angelina Ltd have a fair value of $1.80 per share. (LO5 and LO6)
Question 7.6
Accounting by the acquirer, provisional accounting, disclosures by the acquirer Matt Ltd was a pharmaceutical company operating in Brisbane while Damon Ltd operated a number of research laboratories on the Gold Coast, being particularly concerned with producing products that were related to the effects of mosquito bites. Matt Ltd believed that the acquisition of Damon Ltd would be of significant benefit to it as Damon Ltd had an excellent research facility that would add value to the products manufactured by Matt Ltd. It was prepared to pay a premium for the assets of Damon Ltd because of the high quality of the research staff of Damon Ltd and their ability to provide synergies between the two companies. On 1 June 2021, Matt Ltd acquired all the assets and liabilities of Damon Ltd. In exchange for these, Matt Ltd issued 50 000 shares. Based on recent market transactions, it was determined that these shares had a fair value at acquisition date of $3.04. At this date, Matt Ltd could only determine a provisional fair value for the machinery. Matt Ltd also recognised an intangible asset relating to research and development undertaken by Damon Ltd, but it was not recognised by that entity as it did not meet the recognition criteria under AASB 138/IAS 38 Intangible Assets. This asset was considered to have a fair value of $4000. Subsequent to the end of the reporting period of 30 June 2021, the final fair value was at 20% p.a. The assets and liabilities of Damon Ltd at 1 June 2021 were as follows:
Required
(a) Prepare the journal entries at 1 June 2021 in the accounting records of Matt Ltd to record the acquisition of Damon Ltd as well as any disclosures regarding the acquisition in the notes to the accounts at 30 June 2021.
(b) Prepare any journal entries at 2 September 2021 in relation to the provisional measurement of the machine. (LO5, LO8 and LO9)
Question 7.11
Accounting by an acquirer
Denzel Ltd and Washington Ltd are family-owned ginger producing companies operating in Buderim in Queensland. Denzel Ltd is owned by the Lewis family while the Meninga family owns Washington Ltd. The Lewis family has only one son, Wally, and he is engaged to the daughter of the Meninga family. Because the son is currently managing Denzel Ltd, it is proposed that, after the wedding, Washington Ltd be liquidated and Wally would manage the whole of the two companies’ assets. Information about the assets and liabilities of Washington Ltd at 1 January 2022 is as follows:
Denzel Ltd valued a brand at $40 000 that was used by Washington Ltd but had not been recognised by Washington Ltd as it was internally generated. The brand was considered
to have an indefinite life. The accounting records of Washington Ltd at 1 January 2022 did not include accrued interest on the loan of $12 000. The Lewis and Meninga families agreed to the following terms in relation to the joining together of the two companies.
x Denzel Ltd is to acquire all the assets of Washington Ltd except for cash and one of the vehicles (having a carrying amount of $40 500, and a fair value of $43 200) and assume all the liabilities except for the loan from the Broncos bank and any accrued vehicle will be given to Mr and Mrs Meninga. Washington Ltd will go into liquidation.
x Denzel Ltd is to supply sufficient additional cash to enable the loan from the Broncos Bank to be paid off and to cover the liquidation expenses of $4950. It will also give $135 000 to be distributed to the Meninga family to help pay for the cost of the wedding.
x Denzel Ltd is to give a piece of its land in the Buderim Hills overlooking the Maroochydore coastline to Washington Ltd to be distributed to the Meninga family to build a retirement home. The land is recorded in the records of Denzel Ltd at $72 000 and has a fair value of $198 000.
x Denzel Ltd is to issue 100 000 shares these having a fair value of $12.60 per share. These are to be distributed via Washington Ltd to the daughter of Mr and Mrs Meninga to give her a continuing interest in the family business.
x The business combination occurred on 1 January 2022as per the agreement with Denzel Ltd incurring legal and accounting costs of $22 500 and share issue costs of $16 000.
Required
Prepare the journal entries in the records of Denzel Ltd to account for the business combination. (LO5)
