Trump Ltd acquired all the assets and liabilities of Bush Ltd on 30 June 2020.
The purchase consideration was as follows:
- $1,000,000 in cash paid on acquisition date
- Two shares in Trump Ltd for every one share in Bush Ltd. Bush Ltd has 2,000,000 shares on issue at 30 June 2020. At 30 June 2013 Trump Ltd shares were quoted on the ASX at $2.50 per share.
- A deferred payment of $500,000 to be paid on 30 June 2014.Trump Ltd.’s cost of capital is 7% which represents a one period present value factor of 0.9346
- Should the price of Trump Ltd shares fall below $2.50 in the six months following the acquisition Trump Ltd is required to pay a cash contingent consideration. It is estimated that there is a 60% probability that the share price will fall to $2.45 in this period.
Other information
- Trump Ltd incurred legal and other costs associated with the acquisition of $10,000
- Trump Ltd incurred share issue costs of $4,000
The assets and liabilities acquired from Bush Ltd are as follows:
|
Bush Ltd
|
|
Carrying amount
|
Fair Value
|
|
Accounts Receivable
|
760 000
|
720 000
|
|
Inventory
|
1 300 000
|
1 440 000
|
|
Property Plant and Equipment
|
8 680 000
|
9 560 000
|
|
Accounts Payable
|
(680 000)
|
(680 000)
|
|
Provision for Employee Benefits
|
(170 000)
|
(220 000)
|
In addition Bush Ltd has contingent liabilities of $40,000 at the acquisition date.
Required:
- Prepare an acquisition analysis for Trump Ltd.’s acquisition of the net assets of Bush Ltd
- Prepare the journal entries to record the acquisition in the books of Trump Ltd
- Prepare the journal entry in the books of Trump Ltd if Trump Ltd had purchased all the issued shares of Bush Ltd by issuing 5,000,000 shares in Trump Ltd at an issue price of $2.50 per share.
