Positive Ltd (“Positive”) acquired an 80% stake in Strong Ltd (“Strong”) on 1 January 20x1. The purchase consideration consisted of $2,600,000 cash paid immediately, 500,000 shares in Positive as well as $1,505,200 payable on 31 December 20x1 should Strong increase its sales by 40% in the year ending on the same day. It was estimated that there was a 50% possibility of Strong attaining the required level of sales. The relevant rate of return is 6% per annum. On the acquisition date, Strong had share capital and retained earnings of $2,500,000 and $1,200,000 respectively. Its net assets were carried at fair value in its financial statements except for the following: • Building that had a carrying amount of $1,400,000 million was valued at $1,650,000. It had a remaining useful life of 10 years with no residual value. • Strong has an internally generated brand name that had been valued at $750,000 by market experts and estimated to have a 15-year useful life. This had not been recorded in the company’s financial statements. At the acquisition date, shares in Positive and Strong were trading at $1.80 and $1.30 per share respectively. Positive group adopts the proportionate share of the fair value of the subsidiaries’ net identifiable assets in measuring any non-controlling interest.
Positive Ltd (“Positive”) acquired an 80% stake in Strong Ltd (“Strong”) on 1 January 20x1. The purchase consideration consisted of $2,600,000 cash paid immediately, 500,000 shares in Positive as well as $1,505,200 payable on 31 December 20x1 should Strong increase its sales by 40% in the year ending on the same day. It was estimated that there was a 50% possibility of Strong attaining the required level of sales. The relevant
On the acquisition date, Strong had share capital and
• Building that had a carrying amount of $1,400,000 million was valued at $1,650,000. It had a remaining useful life of 10 years with no residual value.
• Strong has an internally generated brand name that had been valued at $750,000 by market experts and estimated to have a 15-year useful life. This had not been recorded in the company’s financial statements.
At the acquisition date, shares in Positive and Strong were trading at $1.80 and $1.30 per share respectively. Positive group adopts the proportionate share of the fair value of the subsidiaries’ net identifiable assets in measuring any non-controlling interest.
Required:
Record the investment in Strong in the books of Positive by preparing the relevant
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