Taylor Ltd, a supplier of music records and equipment, agreed to acquire the business of a rival company, Speedy Ltd, taking over all assets and liabilities as at 1 June 2020.
The price agreed on was $175,000, payable $150,000 in cash and the balance by the issue to the selling company of 25,000 fully paid shares in Taylor Ltd, these shares having a fair value of $1.00 per share.
The trial balances of the two companies as at 1 June 2020 were as follows.
All the identifiable net assets of Speedy Ltd were recorded by Taylor Ltd at fair value except for the inventories, which were considered to be worth $122,000 (assume no tax effect). The plant had an expected remaining life of 6 years.
The business combination was completed and Speedy Ltd went into liquidation. Taylor Ltd incurred incidental costs of $1,000 in relation to the acquisition. Costs of issuing shares in Taylor Ltd were $2,000.
- Prepare the acquisition analysis for Taylor Limited
- Prepare the journal entries in the records of Taylor Ltd to record the business combination.
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