On 1 July 2017, Patience Ltd acquired all the issued shares of Silence Ltd for a
ID: 2550746 • Letter: O
Question
On 1 July 2017, Patience Ltd acquired all the issued shares of Silence Ltd for a cash consideration of $1,000,000. At that date, the financial statements of Silence Ltd showed the following information.
Share capital $650000
Retained earnings $250000
general reserve $20000
All the assets and liabilities of Silence Ltd were recorded at amounts equal to their fair values at the acquisition date, except some equipment recorded at $50,000 below its fair value with a related accumulated depreciation of $80,000. Silence Ltd accounted for all its property, plant and equipment in its own books using the cost model. In addition, Patience Ltd identified at acquisition date a contingent liability related to a lawsuit where Silence Ltd was sued by a former supplier and attached a fair value of $40,000 to that liability. Required: 1. Prepare the acquisition analysis at 1 July 2017. 2. Prepare the consolidation worksheet entries for Patience Ltd’s group at 1 July 2017.
Explanation / Answer
Consolidation Journal Entries:-
Share Capital....Dr 650000
Retained Earnings.....Dr 250000
General Reserve.........Dr 20000
Goodwill..................Dr 80000
To Investment in Subsdiaries 1000000
To record the equipments at Fair value
Equipments............Dr 50000
To Revaluation Reserve 50000