Week 10: Tutorial questions

Question 1
Penelope Ltd is seeking to expand its share of the market and has negotiated to take over
the operations of Rudolph Ltd on 1 July 2021. The statement of financial position of Rudolph
Ltd as at 30 June 2021 is as follows:

$
Cash 12 000
Accounts Receivable 34 700
Inventory 27 600
Land 100 000
Building 120 000
Accumulated depreciation - Building (90 000)
Plant & Equipment 82 000
Accumulated depreciation – P&E (36 000)
Goodwill 2 000
Total Assets 252 300
Accounts payable 45 100
Mortgage loan 44 000
Debentures 52 500
Share Capital (40 000 ordinary shares) 60 000
Retained earnings 23 900
Reserves 26 800
Total Liabilities & Equity $252 300

Penelope Ltd is to acquire all the identifiable assets, except for cash and plant and
equipment, of Rudolph Ltd. The assets of Rudolph Ltd are all recorded at fair value except
for the following:

Fair Value
Inventory $ 39 000
Land 130 000
Buildings 40 000

In exchange, Penelope Ltd is to provide sufficient extra cash to allow Rudolph Ltd to repay
all of its outstanding debts and its liquidation costs of $4400, plus three fully paid shares in
Penelope Ltd for every five shares held in Rudolph Ltd. The fair value of a share in Penelope
Ltd is $6.
Costs of issuing the shares were $1200.
Required
Prepare the acquisition analysis and journal entries to record the business combination in
the records of Penelope Ltd.

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Question 2
Pop Ltd and Bubble Ltd are small family-owned companies engaged in sustainably farmed
vegetables. The owners of Pop Ltd are doing very well, while the owners of Bubble Ltd want
to retire. On 1 July 2024, Pop Ltd took over the operations of Bubble Ltd, which then
liquidated.
The statement of financial position of Bubble Ltd as at 30 June 2024 was as follows:

$
Cash 2 000
Accounts Receivable 15 000
Land 90 000
Building 125 000
Accumulated depreciation - Building (95 000)
Equipment 114 000
Accumulated depreciation – Equipment (36 000)
Vehicles 100 000
Accumulated depreciation - Vehicles (32 000)
Total Assets $283 000
Accounts payable 23 500
Bank loan 107 500
Share Capital ($2 ordinary shares) 120 000
Retained earnings 32 000
Total Liabilities & Equity $283 000

Pop Ltd agreed to acquire all of the assets, except cash and vehicles, of Bubble Ltd and
assume all of the liabilities except accounts payable.
All the assets of Bubble Ltd are recorded at fair value, except for the following:

Fair Value
Land 110 000
Building 80 000
Vehicles 34 000

In return, Pop Ltd is to give the owners of Bubble Ltd a block of vacant land, two vehicles
and sufficient additional cash to enable Bubble Ltd to pay off the accounts payable and the
liquidation costs of $2500. On 1 July 2024, the land had a fair value of $120 000 (carrying
amount of $50 000) and the vehicles had a fair value of $28 000 (cost of $50 000 and
accumulated depreciation of $20 000).
Required
Prepare the acquisition analysis and the journal entries to record the acquisition of Bubble
Ltd in the records of Pop Ltd.

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Question 3
On 1 July 2024, it was agreed that Dancer Ltd would take over Runner Ltd, after which
Runner Ltd will liquidate. The statement of financial position of Runner Ltd on that day was
as follows:

Cash $ 40  000
Accounts receivable   112 000
Inventory 58  000
Plant and equipment 334  000
Accumulated depreciation — plant and equipment (80  000)
Shares in Harry Ltd 52  000
$516  000
Accounts payable 62  000
Mortgage loan 43 000
10% Debentures 60  000
Share Capital ($4 ordinary shares) 200 000
Retained earnings 151 000
$516  000

Dancer Ltd is to acquire all the assets of Runner Ltd (except for cash) and assume the
accounts payable. The assets of Runner Ltd are recorded at their fair values except for:

Fair Value
Inventory $ 78 400
Plant and equipment 280  000
Shares in Harry Ltd 45 000
In exchange, Dancer Ltd will transfer the following:
 One 5% debenture in Dancer Ltd, redeemable on 1 July 2025, for every two shares held
in Runner Ltd. The fair value of each debenture is $7.
 Two shares in Dancer Ltd for every five shares held in Runner Ltd. The fair value of each
Dancer Ltd share is $5.40. Costs to issue these shares amounts to $1 800.
 A patent that is carried at $70 000 in the records of Dancer Ltd, but is considered to have
a fair value of $80 000.
 Sufficient cash, additional to that already held, to enable Runner Ltd to pay: the
outstanding debentures plus the 10% premium; mortgage loan; annual leave
entitlements of $32 400 outstanding at 1 July 2024; and, liquidation costs of $10 000.
Costs incurred by Dancer Ltd in arranging the business combination amounted to $3 200.

Required:

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Prepare an acquisition analysis and the journal entries in the records of Dancer Ltd to
record the acquisition of Runner Ltd.
Question 4
Wine Ltd and Beer Ltd have agreed that Wine Ltd will take over the business of Beer Ltd.
The statement of financial position of Beer Ltd immediately before the takeover is as
follows.
Carrying Fair Value
Amount
Cash $ 10  000 $ 10  000
Accounts receivable 70  000 62 500
Land 310  000 420  000
Buildings (net) 265  000 275  000
Farm equipment (net) 180  000 182  000
Irrigation equipment (net) 110  000 112  500
Vehicles (net) 80  000 86  000
$1  025  000
Accounts payable $ 40  000 $ 40  000
Bank Loan 240  000 240  000
Share capital 335  000
Retained earnings 410  000
$1  025  000

Wine Ltd is to acquire all the assets of Beer Ltd except for cash, and one of the vehicles
(having a carrying amount of $22 500 and a fair value of $24  000), and assume all the
liabilities except for the bank loan. Beer Ltd is then to go into liquidation.
In exchange for the business, Wine Ltd has agreed to transfer to Beer Ltd the following:

 Sufficient additional cash to enable the bank loan to be paid off, and to cover the
liquidation costs of $2750. Wine Ltd will also give an additional cash figure of $75 000.
 A block of land that has a fair value of $110 000. This land is in Wine Ltd accounts at its
carrying amount of $40 000.
• 50 000 Wine Ltd shares, these having a fair value of $14

The takeover proceeded with Wine Ltd incurring incidental costs of $12 500 and share issue
costs of $9 000.
Required:
Prepare the acquisition analysis and the journal entries to record the acquisition of Beer
Ltd in the records of Wine Ltd.

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