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Acquisition of Assets: Text Chap 10
Acquisition of Assets: Text Chap 10
TEXT CHAP 10 1
Objectives
Prepare the entries in the acquiring company for the acquisition of assets
Acquisition of Assets
Single asset Set of Assets Acquisition of an entity (collection of net assets)
Acquisition of an entity
A company is allowed to acquire the net
assets of another company and is also allowed to indirectly acquire the net assets by purchasing the shares of another company Their are 4 principal forms of acquisition of net assets of a company
Ltd continues with its assets and liabilities replaced with purchase consideration A Ltd acquires the net assets of B Ltd . B Ltd liquidates C Ltd is formed to acquire the net assets of A Ltd & B Ltd. Both A Ltd & B Ltd are liquidated A Ltd acquires the issued shares of B Ltd , B Ltd continues with its shares owned by A Ltd
Acquisition of Assets
Accounting entries for acquisition cost of acquisition ie Assets given up fair value of assets acquired in the case of purchase of an entity whether goodwill/discount on acquisition AASB 1013
Cost of acquisition
The cost of acquisition consists of the purchase consideration & any incidental costs incurred The purchase consideration is rarely in a single form usually it consists cash, shares and other assets (e.g. Land & Buildings) These assets given up as per AASB 1015 must be valued at their fair value
Accounting entries
Single asset
entry recorded at the cost of acquisition
Set of asset
Where the asset consists of more than one asset then the cost of the asset is apportioned over the assets acquired. The process is to allocate in proportion to fair values of assets acquired
eg Purchased for $300 000 Land FV 40 000 Buildings FV 200 000 Furniture FV 80 000 $320 000 10
Accounting entries
Single asset
entry recorded at the cost of acquisition
Set of asset
Where the asset consists of more than one asset then the cost of the asset is apportioned over the assets acquired. The process is to allocate in portion to fair values of assets acquired Entry
eg Purchased for $300 000 Land FV 40 000 Buildings FV 200 000 Furniture FV 80 000 $320 000 Dr Land (40/320*300) 37 500 Dr Blgds (200/320*300) 187 500 Dr Furn (80/320*300) 75 000 Cr Cash 300 000
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$ x (fair values)
$ x (fair values of assets given up) ----$ x (goodwill or discount on acquisition)
Difference
Accounting entries
entry::
Dr Assets acquired (at their fair values) CR Liabilities (acquired) Dr Goodwill Cr Share Capital (shares given up)
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Example
PAID UP CAPITAL $1 36,000 RETAINED PROFITS 21,500 EQUIPMENT 42,000 ACC. DEPRECIATION 10,000 INVENTORY 18,000 DEBTORS 10,000 BILLS RECEIVABLE 6,000 PATENTS 3,500 DEBENTURES 4,000 CREDITORS 8,000 $79,500 $79,500
Example
PAID UP CAPITAL $1 36,000 RETAINED PROFITS 21,500 COST OF ACQUISITION EQUIPMENT 42,000 CASH:: ACC. DEPRECIATION 10,000 COSTS 2,050 INVENTORY 18,000 DEBENTURES 4,080 SHARES(36,000* $2) 10,000 72,000 DEBTORS $78,130 BILLS (also RECEIVABLE 6,000 have to pay the GST ignored for our examples) PATENTS 3,500 DEBENTURES 4,000 CREDITORS 8,000 $79,500 $79,500
COST $78,130
EXAMPLE
PAID UP CAPITAL $1 36,000 RETAINED PROFITS 21,500 EQUIPMENT 42,000 ACC. DEPRECIATION 10,000 INVENTORY 18,000 DEBTORS 10,000 BILLS RECEIVABLE 6,000 PATENTS 3,500 DEBENTURES 4,000 CREDITORS 8,000 $79,500 $79,500
ASSUME FAIR VALUE ASSETS ACQUIRED:: EQUIPMENT 36,000 INVENTORY 20,000 DEBTORS 9,000 PATENTS 4,000 BILLS REC. 6,000 CREDITORS (8,000) $67,000
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COST $78,130
RABBIT LTD TRIAL BALANCE AS AT 1/1/92
PAID UP CAPITAL $1 36,000 RETAINED PROFITS 21,500 EQUIPMENT 42,000 ACC. DEPRECIATION 10,000 INVENTORY 18,000 DEBTORS 10,000 BILLS RECEIVABLE 6,000 PATENTS 3,500 DEBENTURES 4,000 CREDITORS 8,000 $79,500 $79,500
ASSUME FAIR VALUE ASSETS ACQUIRED:: EQUIPMENT 36,000 INVENTORY 20,000 DEBTORS 9,000 PATENTS 4,000 BILLS REC. 6,000 CREDITORS (8,000) $67,000
EXAMPLE
ASSETS ACQUIRED 67,000 COST 78,130 CASH 6,130 SHARES 72000 (36,000 *$2) GOODWILL $11,130
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COST $78,130
RABBIT LTD TRIAL BALANCE AS AT 1/1/92 GOODWILL EXAMPLE:::entry
PAID CAPITAL $1 36,000 DRUP EQUIPMENT 36,000 DR INVENTORY 20,000 RETAINED PROFITS 21,500 DR DEBTORS 10,000 CR PROV D, DEBTS 1,000 EQUIPMENT 42,000 DR PATENTS 4,000 ACC. 10,000 DRDEPRECIATION BILLS REC 6,000 DR GOODWILL 11,130 18,000 INVENTORY CR CREDITORS 8,000 DEBTORS 10,000 CR RABBIT LTD 72,000 CASH 6,130 BILLSCR RECEIVABLE 6,000 DR RABBIT LTD 72,000 3,500 PATENTS CR SHARE CAPITAL 72 000 DEBENTURES 4,000 CREDITORS 8,000 $79,500 $79,500
ASSUME FAIR VALUE ASSETS ACQUIRED:: EQUIPMENT 36,000 INVENTORY 20,000 DEBTORS 9,000 PATENTS 4,000 BILLS REC. 6,000 CREDITORS (8,000) $67,000
EXAMPLE
ASSETS ACQUIRED 67,000 COST 78,130 CASH 6,130 SHARES 72000 (36,000 *$2) GOODWILL $11,130
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Amortisation of Goodwill
Goodwill- $11 130 Assume that the goodwill is written off over 10 years
Journal Entry
Dr Amortisation of Goodwill 1 113 CR Goodwill 1 113 (or Provision for Goodwill)
Balance Sheet
Intangibles (Note x) 10 017
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PAID UP CAPITAL $1 36,000 RETAINED PROFITS 21,500 EQUIPMENT 42,000 ACC. DEPRECIATION 10,000 INVENTORY 18,000 DEBTORS 10,000 BILLS RECEIVABLE 6,000 PATENTS 3,500 DEBENTURES 4,000 CREDITORS 8,000 $79,500 $79,500
COST $78,130 ASSUME FAIR VALUE ASSETS ACQUIRED:: EQUIPMENT 45,000 INVENTORY 25,000 DEBTORS 9,000 PATENTS 5,000 BILLS REC. 6,000 CREDITORS (8,000) $82,000
EXAMPLE
DISCOUNT EXAMPLE
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PAID UP CAPITAL $1 36,000 RETAINED PROFITS 21,500 EQUIPMENT 42,000 ACC. DEPRECIATION 10,000 INVENTORY 18,000 DEBTORS 10,000 BILLS RECEIVABLE 6,000 PATENTS 3,500 DEBENTURES 4,000 CREDITORS 8,000 $79,500 $79,500
COST $78,130 ASSUME FAIR VALUE ASSETS ACQUIRED:: EQUIPMENT 45,000 INVENTORY 25,000 DEBTORS 9,000 PATENTS 5,000 BILLS REC. 6,000 CREDITORS (8,000) $82,000
EXAMPLE
ASSETS ACQUIRED 82,000 COST 78,130 CASH 6,130 SHARES 72000 (36,000 *$2) DISCOUNT $3.870
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RABBIT LTD TRIAL BALANCE AS AT 1/1/92 DISCOUNT:: NON-M F.V. ALLOCATION COST PAID UP CAPITAL $1(45/75) 42,678 36,000 EQUIP 45,000 2,322 INVENT 25,000 1,290 (25/75) 23,710 RETAINED PROFITS 21,500 PATENTS 5,000 258 ( 5/75) 4,742 EQUIPMENT -------------- 42,000-------$75,000 $3,870 $71,130
COST $78,130 ASSUME FAIR VALUE ASSETS ACQUIRED:: EQUIPMENT 45,000 INVENTORY 25,000 DEBTORS 9,000 PATENTS 5,000 BILLS REC. 6,000 CREDITORS (8,000) $82,000
EXAMPLE
ACC. DEPRECIATION 10,000 DR EQUIP 42,678 INVENTORY 18,000 DR INVENT 23,710 DEBTORS 10,000 DR PATENTS 4,742 DR BILLS REC 6,000 BILLS RECEIVABLE 6,000 DR DEBTORS 10,000 PATENTS 3,500 CR PROV D. DEBTS 1,000 CR CREDITORS 8,000 DEBENTURES 4,000 CR CASH 6,130 CR RABBIT LTD 72,000 CREDITORS 8,000 $79,500 $79,500
ASSETS ACQUIRED 82,000 COST 78,130 CASH 6,130 SHARES 72000 (36,000 *$2) DISCOUNT $3.870
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Tutorial Questions
Exercise 10.2 (Part B only) Exercise 10.3 Exercise 10.4 ( Amend ARR $140 000) Problem 10.1 (Part A only) Problem 10.5 (parts B & C only)
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