112 000 Inventory 58 000 Plant and equipment 334 000 Accumulated depreciation — plant and equipment (80 000
Question 3
On 1 July 2024, it was agreed that Dancer Ltd would take over Runner Ltd, after which Runner Ltd will liquidate. The
|
Cash |
$ 40 000 |
|
|
112 000 |
|
Inventory |
58 000 |
|
Plant and equipment |
334 000 |
|
|
(80 000) |
|
Shares in Harry Ltd |
52 000 |
|
|
$516 000 |
|
Accounts payable |
62 000 |
|
Mortgage loan |
43 000 |
|
10% Debentures |
60 000 |
|
Share Capital ($4 ordinary shares) |
200 000 |
|
|
151 000 |
|
|
$516 000 |
Dancer Ltd is to acquire all the assets of Runner Ltd (except for cash) and assume the accounts payable. The assets of Runner Ltd are recorded at their fair values except for:
|
|
Fair Value |
|
Inventory |
$ 78 400 |
|
Plant and equipment |
280 000 |
|
Shares in Harry Ltd |
45 000 |
In exchange, Dancer Ltd will transfer the following:
- One 5% debenture in Dancer Ltd, redeemable on 1 July 2025, for every two shares held in Runner Ltd. The fair value of each debenture is $7.
- Two shares in Dancer Ltd for every five shares held in Runner Ltd. The fair value of each Dancer Ltd share is $5.40. Costs to issue these shares amounts to $1 800.
- A patent that is carried at $70 000 in the records of Dancer Ltd, but is considered to have a fair value of $80 000.
- Sufficient cash, additional to that already held, to enable Runner Ltd to pay: the outstanding debentures plus the 10% premium; mortgage loan; annual leave entitlements of $32 400 outstanding at 1 July 2024; and, liquidation costs of $10 000.
Costs incurred by Dancer Ltd in arranging the business combination amounted to $3 200.
Required:
Prepare an acquisition analysis and the
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