On 31 October, Lector Limited agreed to acquire Hannibal Limited for $400,000 wh
ID: 2328117 • Letter: O
Question
On 31 October, Lector Limited agreed to acquire Hannibal Limited for $400,000 which is to be settled by:
(a) 250,000 fully paid ordinary shares in Lector Limited at $1.00 per share, and (b) $150,000 in cash.
The Statement of Financial Position (Balance Sheet) of Hannibal Limited contained the following assets and liabilities to be acquired by Lector Limited for the fair values listed for each.
Book Value
Fair Value
Assets
$
$
$
Accounts Receivable
195,000
Less Allowance for Doubtful debts
(25,000)
170,000
165,000
Inventory
200,000
190,000
Plant and Equipment
250,000
Less Accumulated Depreciation
(75,000)
175,000
150,000
Total Assets
545,000
505,000
Less Liabilities
Accounts Payable
150,000
150,000
Net Assets Acquired
395,000
355,000
Purchase Consideration
(250,000 Shares × $1) + 150,000 cash
400,000
Goodwill
45,000
Required:
Prepare General Journal Entries for the transaction.
Note: Any adjustment to the fair value of accounts receivable must be made through the allowance for doubtful debts (the gross Accounts Receivable balance should remain at book value).
Book Value
Fair Value
Assets
$
$
$
Accounts Receivable
195,000
Less Allowance for Doubtful debts
(25,000)
170,000
165,000
Inventory
200,000
190,000
Plant and Equipment
250,000
Less Accumulated Depreciation
(75,000)
175,000
150,000
Total Assets
545,000
505,000
Less Liabilities
Accounts Payable
150,000
150,000
Net Assets Acquired
395,000
355,000
Purchase Consideration
(250,000 Shares × $1) + 150,000 cash
400,000
Goodwill
45,000
Explanation / Answer
General Journal Entries in the books of Lector Ltd.
Particulars
Amount (Dr.)
Amount (Cr.)
Purchase consideration A/c..............Dr
To Haniball Ltd. A/c
400000
400000
Accounts Receivable A/c ...................Dr.
Inventory A/c ......................................Dr.
Pant & Equipment A/c ........................Dr.
Goodwill A/c .......................................Dr.
To Accounts Payable A/c
To Purchase Consideration A/c
165000
190000
150000
45000
150000
400000
Haniball Ltd. A/c ..................................Dr.
To Cash A/c
To Securities Capital A/c
400000
150000
250000
TOTAL
1350000
1350000
Particulars
Amount (Dr.)
Amount (Cr.)
Purchase consideration A/c..............Dr
To Haniball Ltd. A/c
400000
400000
Accounts Receivable A/c ...................Dr.
Inventory A/c ......................................Dr.
Pant & Equipment A/c ........................Dr.
Goodwill A/c .......................................Dr.
To Accounts Payable A/c
To Purchase Consideration A/c
165000
190000
150000
45000
150000
400000
Haniball Ltd. A/c ..................................Dr.
To Cash A/c
To Securities Capital A/c
400000
150000
250000
TOTAL
1350000
1350000
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