For Zeek The Geek

ANSWER

GREAT LTD – FROGMOUTH LTD

Acquisition analysis: 1 July 2015

Net fair value of identifiable assets

and liabilities of Frogmouth Ltd = $160 000 + $40 000

+ $4 000 (1- 30%) (BCVR – inventory)

+ $5 000 (1 – 30%) (BCVR – plant)

- $6 000 (goodwill)

+ $50 000 (1 -30%) (BCVR - brands)

+ $20 000 (1 – 30%) (BCVR – research)

- $10 000 (1 – 30%) (BCVR – liability)

= $242 300

Consideration transferred = $153 000 - $5 000 (dividend receivable)

= $148 000

Previously held equity interest = $102 000 (fair value)

Goodwill acquired = ($148 000 + $102 000) - $242 300

= $7 700

Unrecorded goodwill = $7 700 - $6 000

= $1 700

Business combination valuation entries at 1 July 2015

Inventory Dr 4 000

Deferred tax liability Cr 1 200

Business combination valuation reserve Cr 2 800

Accumulated depreciation Dr 20 000

Plant Cr 15 000

Deferred tax liability Cr 1 500

Business combination valuation reserve Cr 3 500

Brands Dr 50 000

Deferred tax liability Cr 15 000

Business combination valuation reserve Cr 35 000

In-process research Dr 20 000

Deferred tax liability Cr 6 000

Business combination valuation reserve Cr 14 000

Business combination valuation reserve Dr 7 000

Deferred tax asset Dr 3 000

Provision for damages Cr 10 000

Accumulated impairment losses – goodwill Dr 4 000

Goodwill Cr 4 000

Goodwill Dr 1 700

Business combination valuation reserve Cr 1 700

Pre-acquisition entries at 1 July 2015

Retained earnings (1/7/14) Dr 40 000

Share capital Dr 160 000

Business combination valuation reserve Dr 50 000

Shares in Frogmouth Ltd Cr 250 000

Dividend payable Dr 5 000

Dividend receivable Cr 5 000