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    GalaeU Os co) I) What is meant by a "business combination"? Discuss the importance of identifying the sequistion date, ‘What is meant by “contingent consideration’ and how is it accounted for? Explain the key components of "eore” goodwill, ‘What recognition eriteria are applied to assets and Hailes acquired How isan acquirer identified?” ‘Explain the key steps inthe acquisition method sabusinesscombination? Sua em Bene tat How isthe consideration transfered calculated? to? 9. If an acquire liguidates, what are the key accounts raised by the acquire and which accounts ae irnsferred to these accounts? ws 10 = = = —. i = irr f=) = tat Ti) Why isi imponan to idemify an acquirer ina business combination? eee sen a0 Basie mM Moderate Challenging Question 12.1. Accounting by the acquirer (05 MOD The wal balance of Jackman Ltd at | January 2016 was as follows: Det credit § 12000 0000 Retained earings 43000 Equipment $ 24000 ‘cumulated depreiaen equipment 20000 Inventory ‘36000 Accounts cable 20000 Investments 12000 Patents 7000 Debentures 8000 Accounts payable 16000 5 159000 Athis data ll the assets and lis sof Jackman Ltd are sold to Hugh Ld, with Jackman Lid going into voluntary liquidation, The tems of acquisition are: (@) Hugh Ltd isto take overall the assets of Jackman Ltd, as well asthe accounts payable of Jackman Lid () Costs of liquidation of $700 are tobe paid by Jackman Ltd with funds supplied by Hugh Lud (6) Preference shares in Jackman Lid ate to receive two Tully paid shares in Hugh Ltd for every thee shares hel, or alternatively, $0.80 per share (8) Ondnary shareholders Ld for every share held o cash payable atthe acquisition date. of Jackman Ltd ate to receive two fully paid ordinary shares in Hugh natively, $2.50 in cash payable half a the acquisition date () Debenture holders of Jackman Ltd ae to be paid in cash out of funds provided by Hugh Lid The debentures have fur value of $102 per $100 debenture. (8, All shares isued by Hugh Ltd havea fair value of $1.20 per share. (2) Coss of issuing and registering the shares issued by Hugh Ltd amount to $80 forthe prefer. ‘ence shares and $200 fo the ordinary shares. (h) Legal and accounting costs associated with the aequisition of Jackman Ltd amount to $2000. ‘The two parties agree onthe terns of the arrangement, and holders of 6000 preference shares ‘and 10000 ordinary shares elect to receive cash Hugh Lid assesses the f values of the ilentfable assets and lisbilties of Jackman Ld to be ae augment ‘sr2000 Inventory "40000 ‘Recounts receivable 19000 Patents 000 Invastmants 12000 counts payable 16000 Hugh Ltd hasan incremental borowing rate of 10%, Required ‘A. Prepare the acquisition analysis in relation to the above acquisition by Hugh Ltd 1B. Prepare the joural entries inthe records of Hugh Lid at the date of acquisition. (C. Prepare the journal entry forthe payment of the deferred consideration in one year's time Company Aczunag | Tet Eaton WITY SECTION Question 12.2 wes moo Question 12.11 osmma Accounting at acquisition date by the acquirer (On 1 July 2016, Brad Lad acquired ll ofthe assets and labiites of Pat Lid In exchange for these assets an ibis, Brad Lid issued 100000 shares that at date of sue ha afi vale of $5.20 per share. Coss of suing these shares amounted to $1000, Legalcoss associated withthe acquisition of Pit Lud amounted to $1200 "The ass and linblities of Pit Lt at | July 2016 were a follows Carrying amount Fairvalue Assets Cash $2000 $2000 Accounts resivabie 10000 10000 Inventory 64000 8000 Equipment s20000 32000 ‘Accumulated depreciation ~ equipment (96000) = 40000 230000 (16000) (18000) (64000) (64000) Required ‘A. Prepare the acquisition analysis at 1 July 2016 for the acquisition of Pitt Ltd by Brad Lid 'B. Prepare the journal entries inthe records of Brad Ltd at | July 2016. C. Prepare the journal enties inthe eeords of Brad Ltd assuming thatthe shares issued by Brad Ltd ad a fair vale of $480, Accounting by an acquirer Denzel Ltd and Washington Ltd are family-owned ginger producing companies operating in ‘Buderim in Queensland. Denzel Lid is owned by the Lewis family while the Meminga family ‘owns Washington Lid. 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 iis pro- ‘posed that, afler the wedding, Washington Ltd be liquidated and Wally would manage the whole ‘of the two companies’ assets. Information about the assets and abilities of Washington Lid at January 2017 isa follows: Carrying amount Fairvalve Bulings 540000 ‘495000 ‘Accurusted depreciation (62000) Land ‘ss0000 796000 Machinery 350000 27600 ‘Accuuated depreciation (25000) Ingaon equipment 28000 202600 ‘Accumulnted depreciation (20000) Vobiles 162000, 15400 ‘ccumunted depreciation (13000) cash 19000 18000 ‘counts resivate 125000 12500 Payables 72000 72000 Loan fom Broncos bak 432000 482000 Denzel Ltd valued a brand at $40000 that was used by Washington Lid but had not been recognised by Washington Ltd xs it was interally generated. The brand was considered to have fn indefinite life, The accounting records of Washington Ltd at I January 2017 did not include acenued interest on the loan of $12000. The Lewis and Meninga families agreed to the following terms in relation to the joining together ofthe two companies. ‘Denzel Lid is to acquite all the assets of Washington Ltd except for cash and one of the ‘icles (having a carrying amount of $40 500, anda fair value of $43200) and assume al the liabilities except fr the loan from the Broncos bank and any accrued interest. The vehicle will be given to Mrand Mrs Meninga, Washington Ltd will go ito liquidation + Denzel Lid isto supply sufficient addtional cash to esable the loan from the Broacos Bank to be paid off and to cover the liquidation expenses of $4950, It wil also give $135000 to be

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