AFA Topic 2 Self-Study Activities.pdf - Advanced Financial...

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1 Advanced Financial Accounting Self-Study Questions Topic 2 Business Combinations Question 1. Imports & Exports Ltd (IEL) manufactures a wide range of products. IEL’s payroll and accounting system is managed as a separate cost centre, supporting all the operating segments and the head office functions. Artemesia Ltd agrees to acquire the existing customer contracts, assets, liabilities and workforce of the operating segments of IEL but does not acquire the payroll and accounting cost centre or any head office functions. Artemesia Ltd is a competitor of IEL. Required: Applying the definition and guidance in AASB 3, has Artemesia Ltd acquired a ‘business’. Question 2. On 1 July 2018, Brad Ltd acquired all of the assets and liabilities of Pitt Ltd. In exchange for these assets and liabilities, Brad Ltd issued 100 000 shares that at date of issue had a fair value of $5.20 per share. Costs of issuing these shares amounted to $1000. Legal costs associated with the acquisition of Pitt Ltd amounted to $1200. The asset and liabilities of Pitt Ltd at 1 July 2018 were as follows: Carrying amount Fair value Assets Cash $2 000 $2 000 Accounts receivable 10 000 10 000 Inventory 64 000 68 000 Equipment 320 000 232 000 Accumulated depreciation equipment (96 000) Patents 240 000 280 000 Liabilities Accounts payable (16 000) (16 000) Debentures (64 000) (64 000) Required A. Prepare the acquisition analysis at 1 July 2018 for the acquisition of Pitt Ltd by Brad Ltd. B. Prepare the journal entries in the records of Brad Ltd at 1 July 2018. C. Prepare the journal entries in the records of Brad Ltd assuming that the shares issued by Brad Ltd had a fair value of $4.80.
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