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|
|Cultivation equipment (net)||69,000||46,000|
|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||–|
All of the assets of Lettuce Ltd are recorded at fair value, with the exception of:
*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|
- Prepare the acquisition analysis in relation to the acquisition.
- Prepare the journal entries in Salad Ltd to record the business combination.
- Prepare the statement of financial position of Salad Ltd immediately subsequent to the acquisition.
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