The financial statements of a ltd and b ltd at 1 july 2020 are as follows. A Ltd B Ltd cash 25000 plant 60000 35000 Accumulated depreciation (15000) (120000) inventories 12000 24000 Account receivable 20000 36000 goodwill 0 10000 Total assets 102600 117000 Account payable 1800 17000 Net assets 100800 100000 Share capital Retained earnings 50000 81000 General reserve 8800 4000 Total equity 2000 15000 100800 100000 All the assets and liabilities of B Ltd were recorded for fair value except for the following assets. Plant 47000(Fair value) Inventory 22000(Fair value) A Ltd agreed to pay B Ltd $6000 in cash plus 16000 fully paid shares having a fair value of $7.5 per share. The business combination was completed and B ltd liquidation. Cash of liquidation amounted to $1200. A Ltd incurred legal and accounting costs amounted to $482 in relation to the business combination. Cost of issuing the A Ltd shares were $330. On 30 June 2020 B Ltd had reported a contingent liability relating to the guarantee given by that company to another entity , B Ltd did not record the guarantee as a liability because of the difficulty of measuring the liability. The fair value of the contingent liability was assessed as $15,000. Required: Prepare the journal entries in A Ltd to record the business combination.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The financial statements of a ltd and b ltd at 1 july 2020 are as follows.
|
|
A Ltd |
B Ltd |
|
cash |
25000 |
|
|
plant |
60000 |
35000 |
|
|
(15000) |
(120000) |
|
inventories |
12000 |
24000 |
|
|
20000 |
36000 |
|
|
0 |
10000 |
|
Total assets |
102600 |
117000 |
|
Account payable |
1800 |
17000 |
|
Net assets |
100800 |
100000 |
|
Share capital |
|
|
|
|
50000 |
81000 |
|
General reserve |
8800 |
4000 |
|
Total equity |
2000 |
15000 |
|
|
100800 |
100000 |
All the assets and liabilities of B Ltd were recorded for fair value except for the following assets.
Plant 47000(Fair value)
Inventory 22000(Fair value)
A Ltd agreed to pay B Ltd $6000 in cash plus 16000 fully paid shares having a fair value of $7.5 per share. The business combination was completed and B ltd liquidation.
Cash of liquidation amounted to $1200.
A Ltd incurred legal and accounting costs amounted to $482 in relation to the business combination.
Cost of issuing the A Ltd shares were $330.
On 30 June 2020 B Ltd had reported a
Required:
Prepare the
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