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 25,000fully 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. Taylor Speedy Dr Cr Dr Cr Share capital 1,200,000 300,000 Retained earnings 420,000 184,000 Accounts payable 97,000 325,000 Cash 275,000 Equipment (net) 468,000 230,000 Inventory 415,000 122,000 Accounts receivable 309,000 68,000 Borrowings 250,000 Goodwill 21,000 1,717,000 1,717,000 625,000 625,000 All the identifiable net assets of Speedy Ltd were recorded by Speedy 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. Required a. Prepare the acquisition analysis for Taylor Limited ? b. Prepare the journal entries in the records of Taylor Ltd to record the business combination?
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 25,000fully paid shares in Taylor Ltd, these shares having a fair value of $1.00 per share.
The
|
|
Taylor |
Speedy |
||
|
|
Dr |
Cr |
Dr |
Cr |
|
Share capital |
|
1,200,000 |
|
300,000 |
|
|
|
420,000 |
184,000 |
|
|
Accounts payable |
|
97,000 |
|
325,000 |
|
Cash |
275,000 |
|
|
|
|
Equipment (net) |
468,000 |
|
230,000 |
|
|
Inventory |
415,000 |
|
122,000 |
|
|
|
309,000 |
|
68,000 |
|
|
Borrowings |
250,000 |
|
|
|
|
|
|
|
21,000 |
|
|
|
1,717,000 |
1,717,000 |
625,000 |
625,000 |
All the identifiable net assets of Speedy Ltd were recorded by Speedy 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.
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