ACC723 TUTORIAL 5 SOLUTION

Question one
A. Acquisition of net assets of Coffees Ltd: FV of Nestle Ltd shares is $2.40.
Net fair value of identifiable assets and liabilities acquired:

Machinery $67 000

Fixtures & fittings 68 000
Vehicles 35 000
Current assets 12 000
182 000
Current liabilities (18 000)
$164 000

Consideration transferred

Shares: 80 000 x $2.40 $192 000

Thus, Goodwill = $192 000 - $164 000 $28 000

Journal entries: Nestle Ltd

Machinery Dr 67 000
Fixtures & fittings Dr 68 000
Vehicles Dr 35 000
Current assets Dr 12 000
Goodwill Dr 28 000
Current liabilities Cr 18 000
Share capital Cr 192 000
(Acquisition of assets and liabilities of Coffee Ltd)

Share capital Dr 2000

Cash Cr 2000
(Share issue costs)

B. Acquisition of net assets of Coffees Ltd : FV of Nestle Ltd shares is $2.00

Net fair value of net assets acquired $164 000
Consideration transferred
Shares: 80 000 x $2.00 $160 000
Gain on bargain purchase = $164 000 - $160 000 $4 000

1
Journal entries:

Jolie Ltd Machinery Dr 67 000

Fixtures & fittings Dr 68 000
Vehicles Dr 35 000
Current assets Dr 12 000
Current liabilities Cr 18 000
Gain on bargain purchase Cr 4 000
Share capital Cr 160 000
(Acquisition of assets & liabilities of Coffee Ltd)

Share capital Dr 200

Cash Cr 2000
(Share issue costs)

QUESTION 2
Acquisition Analysis

Net fair value of identifiable assets and liabilities acquired:

Accounts receivable $112 500
Land 756 000
Buildings 495 000
Machinery 327 600
Production Machine 202 500
Vehicles ($154 800 - $43 200) 111 600
Brand 40 000
2 045 200
Accounts payable 72 000
$1 973 200

Consideration transferred:

Shares: 100 000 x $12.60 per share $1 260 000

Cash: [$432 000 + $12 000 +$4 950 +$135 000 - $18 000] 565 950
Land: 198 000
$2 023 950

Goodwill $2 023 950 - $1 973 200 = $50 750

2
The journal entries in SOL BISCUIT Ltd are:

Land Dr 126 000

Gain Cr 126 000

(Re-measurement as part of consideration transferred in a business combination)

Accounts receivable Dr 112 500

Land Dr 756 000
Buildings Dr 495 000
Machinery Dr 327 600
Irrigation equipment Dr 202 500
Vehicles Dr 111 600
Brand Dr 40 000
Goodwill Dr 50 750
Payables Cr 72 000
Share capital Cr 1 260 000
Payable to Fielders Ltd Cr 565 950
Land Cr 198 000
(Acquisition of net assets of Fielders Ltd)

Payable to Fielders Dr 565 950

Cash Cr 565 950
(Payment of purchase consideration)

Acquisition-related expenses Dr 22 500

Cash Cr 22 500
(Payment of acquisition-related costs)

Share capital Dr 16 000

Cash Cr 16 000
(Share issue costs)