On 1 July 2017, Patience Ltd acquired all the issued shares of Silence Ltd for a

Question

On 1 July 2017, Patience Ltd acquired all the issued shares of Silence Ltd for a cash consideration of $1,000,000. At that date, the financial statements of Silence Ltd showed the following information. Share capital $650000 General reserve $20000 Retained earnings $ 250000 All the assets and liabilities of Silence Ltd were recorded at amounts equal to their fair values at the acquisition date, except some equipment recorded at $50,000 below its fair value with a related accumulated depreciation of $80,000. Silence Ltd accounted for all its property, plant and equipment in its own books using the cost model. In addition, Patience Ltd identified at acquisition date a contingent liability related to a lawsuit where Silence Ltd was sued by a former supplier and attached a fair value of $40,000 to that liability. Required: 1. Prepare the acquisition analysis at 1 July 2017. 2. Prepare the consolidation worksheet entries for Patience Ltd’s group at 1 July 2017.

Explanation / Answer

1.

2.

Cost paid 1000000 Assets acquired    Common Stock 650000    General Reserve 20000     Retained Earnings 250000     Book value of the net assets 920000    Excess of fair value       Equipment 50000       Contingent liability -40000       Total 10000 Total value acquired 930000 Goodwill 70000

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