On 1 July 2021, Mel Ltd took control of the assets and liabilities of Syd Ltd. At this date the statement of financial position of Syd Ltd was as follows: RequiredPrepare the journal entries in the records of Mel Ltd at 1 July 2021 in each of the following situations, assuming the costs of issuing the shares by Mel Ltd cost $1600. Mel Ltd issued 80 000 shares having a fair value of $2.40 per share in exchange for the net assets of Syd Ltd Mel Ltd issued 80 000 shares having a fair value of $2.00 per share in exchange for the net assets of Syd Ltd. Mel Ltd acquired the shares of Syd Ltd. The agreement was that Mel Ltd would pay the shareholders of Syd Ltd one share in Mel Ltd for every two shares held in Syd Ltd plus $1 in cash for each share held in Syd Ltd. Shares in Mel Ltd have a fair value of $1.80 per share. MachineryFixtures & fittingsVehiclesCurrent assetsCurrent liabilitiesTotal net assetsShare capital (80 000 shares at $1.00 per share)General reserveRetained earningsTotal equityCarrying amount$ 4000060 00035 00010 000(16 000)$129000$ 8000020 00029 000$129 000Fair value$ 67 00068 00035 00012 000(18000)

Answered: On 1 July 2021, Mel Ltd took control of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

On 1 July 2021, Mel Ltd took control of the assets and liabilities of Syd Ltd. At this date the statement of financial position of Syd Ltd was as follows:

Required

Prepare the journal entries in the records of Mel Ltd at 1 July 2021 in each of the following situations, assuming the costs of issuing the shares by Mel Ltd cost $1600.

Mel Ltd issued 80 000 shares having a fair value of $2.40 per share in exchange for the net assets of Syd Ltd
Mel Ltd issued 80 000 shares having a fair value of $2.00 per share in exchange for the net assets of Syd Ltd.
Mel Ltd acquired the shares of Syd Ltd. The agreement was that Mel Ltd would pay the shareholders of Syd Ltd one share in Mel Ltd for every two shares held in Syd Ltd plus $1 in cash for each share held in Syd Ltd. Shares in Mel Ltd have a fair value of $1.80 per share.

Machinery
Fixtures & fittings
Vehicles
Current assets
Current liabilities
Total net assets
Share capital (80 000 shares at $1.00 per share)
General reserve
Retained earnings
Total equity
Carrying amount
$ 40000
60 000
35 000
10 000
(16 000)
$129000
$ 80000
20 000
29 000
$129 000
Fair value
$ 67 000
68 000
35 000
12 000
(18000)

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Expert Solution

Step 1

If the value of consideration discharge more than the fair value of asset acquired then such an excess will be recorded as goodwill.

Similarly If the value of consideration discharge less than the fair value of asset acquired then such an amount will be recorded as gain on bargain purchase.