On 1 July 2015 Sarah Ltd acquires all the shares in Jane Ltd for $600,000 cash T

Question

On 1 July 2015 Sarah Ltd acquires all the shares in Jane Ltd for $600,000 cash

The financial statements of Jane Ltd as at 1 July 2015 shows the following:

                        Retained earnings    127,000

                        Share capital             215,000

The tax rate is 30%

At the date of acquisition all the net assets of Jane Ltd are at fair value except for the following:

Carrying amount

Fair value

Land

$190,000

$232,000

Equipment (cost $232,000)

$155,000

$250,000

Calculate and enter the amount of FVA and the amount of goodwill for the acquisition analysis

Carrying amount

Fair value

Land

$190,000

$232,000

Equipment (cost $232,000)

$155,000

$250,000

Explanation / Answer

In case of Fair Value Accounting if the assets are carried down at fair value then the difference between the fair value and carrying amount of these assets as of the acquisition date, record a gain or loss in earnings to reflect the difference

However, if these assets are simply being transferred to the acquiree entity (which the acquirer now controls), do not restate these assets to their fair value; this means there is no recognition of a gain or loss.

Therefor value of Assets = 190000+155000 = 345000

Goodwill= (Consideration paid + Fair value of noncontrolling interest) – (Assets acquired – Liabilities assumed)

=(600000+0)-(345000-342000)= 600000-3000 = 570000

Since other assets acquired has not given Goodwill in this case is 570000

Thank You

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