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Acquisition Issues 2010 - ACCT 2 5 4 2 5 Class Test for...

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ACCT 2542 5 th Class Test for 2010 QUESTION ONE What is the definition of control that is used to identify the corporate group? QUESTION TWO On 1 July 20X6 A Ltd acquired all the ordinary voting shares of B Ltd in exchange for cash consideration of $550,000. At the acquisition date the balance sheets of A Ltd and B Ltd and fair values of B Ltd’s assets and liabilities are as follows: A Ltd B Ltd Carrying Amount Carrying Amount Fair Value $ $ Equity Share capital 550,000 300,000 Retained profits 350,000 140,000 Liabilities Provisions 30,000 60,000 60,000 Accounts payable 27,000 34,000 34,000 Tax liabilities 10,000 6,000 6,000 Total Equity and Liabilities 967,000 540,000 Assets Cash 15,000 5,000 5,000 Inventory 42,000 75,000 95,000 Plant – at cost 620,000 480,000 360,000 Accumulated depreciation (380,000) (170,000) Land – at cost 120,000 150,000 180,000 Investment in B Ltd 550,000 - Total Assets 967,000 540,000 Additional information The company income tax rate is 30%. REQUIRED (A) Prepare an acquisition analysis for A Ltd’s acquisition of B Ltd. (B) Prepare the consolidation journal entries needed for the consolidation of A Ltd and B Ltd at the acquisition date of 1 July 20X6.
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