Salad Ltd acquired all the net assets of an existing business, Lettuce Ltd on 1 July 2020. The statements of financial position of the two companies immediately prior to the acquisition were as follows:


    Salad Ltd Lettuce Ltd
Cash   $4,200 $2,000
Accounts receivable   30,000 16,500
Freehold land   265,000 100,000
Building (net)   35,000 28,000
Cultivation equipment (net)   69,000 46,000
Irrigation equipment   18,000 21,000
Delivery trucks   46,000 36,000
Motor vehicles   30,000 32,000
    497,200 281,500
Accounts payable   29,000 24,500
Loan – Bank of NSW   155,000 79,000
Loan – Bernard Bros   35,000 34,000
Loan – Golds Corp.   72,000 52,500
Share capital               110,000 shares 110,000
                60,000 shares 60,000
Reserves   28,500
Retained earnings   67,700 31,500
    497,200 281,500


All of the assets of Lettuce Ltd are recorded at fair value, with the exception of:

  Fair value
Freehold land* 120,000
Buildings 40,000
Cultivation equipment 40,000
Motor vehicle 34,000

*Fair value excluding Lettuce’s vacant land.

The terms of the acquisition are as follows:

  • Salad Ltd is to acquire all of the assets, except cash, delivery trucks and motor vehicles of Lettuce Ltd and will assume all of the liabilities except accounts payable.
  • Salad Ltd is to give the share-holders of Lettuce Ltd a block of vacant freehold land, two delivery vehicles and sufficient additional cash to enable the company to pay of the accounts payable and then liquidation costs of $1,600.
  • On the liquidation of Lettuce Ltd, the former directors are to receive the land, motor vehicles and the delivery trucks. The land and vehicles had the following values at 1 July 2020:
  Carrying amount Fair Value
Freehold Land $50,000 $120,000
Delivery Trucks   30,000     27,000



  1. Prepare the acquisition analysis in relation to the acquisition.
  2. Prepare the journal entries in Salad Ltd to record the business combination.
  3. Prepare the statement of financial position of Salad Ltd immediately subsequent to the acquisition.

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