On 1 January 2019, Company P purchased 80% of the equity of Company S. The following transactions arose at the acquisition date. Issue of P’s shares - 1,200,000 shares [Note b] Immediate cash payment - $400,000 Deferred cash payment - $1,000,000 payable 2 years later Due diligence fees paid to lawyers - $20,000 Equipment transferred - $40,000 (fair value=book value) Note: P’s effective interest rate was 5% per annum. P’s share price is $1.25 The fair value of non-controlling interests at acquisition date was $640,000. Share capital and Retained earnings of S were $1,000,000 and $900,000 respectively on 1 January 2019. On the same day, there was an intangible asset carried in S at $500,000 but the fair value of it was $700,000. Required: a. Determine the fair value of the consideration transferred on 1 January 2019 in accordance with IFRS 3 Business Combinations. Round to the nearest integer. Prepare the journal entries in P’s books on 1 January 2019. Calculate the goodwill on 1 January 2019.
On 1 January 2019, Company P purchased 80% of the equity of Company S. The following transactions arose at the acquisition date.
Issue of P’s shares - 1,200,000 shares [Note b]
Immediate cash payment - $400,000
Deferred cash payment - $1,000,000 payable 2 years later
Due diligence fees paid to lawyers - $20,000
Equipment transferred - $40,000 (fair value=book value)
Note:
-
P’s effective interest rate was 5% per annum.
-
P’s share price is $1.25
-
The fair value of non-controlling interests at acquisition date was $640,000.
-
Share capital and
Retained earnings of S were $1,000,000 and $900,000 respectively on 1 January 2019. On the same day, there was an intangible asset carried in S at $500,000 but the fair value of it was $700,000.
Required:
a. Determine the fair value of the consideration transferred on 1 January 2019 in accordance with IFRS 3 Business Combinations. Round to the nearest integer.
-
Prepare the
journal entries in P’s books on 1 January 2019. -
Calculate the
goodwill on 1 January 2019.
Step by step
Solved in 2 steps
