Parent Subsidiar Subsidiar

y y
EQUITY: Carryin Carrying Fair
g
Amount Amount Value

Share Capital 550,000 300,000

Retained Earnings 350,000 140,000
Total 900,000 440,000
LIABILITIES:
Provisions Liability 30,000 60,000 60,000
Payables 27,000 34,000 34,000
Tax Liabilities 10,000 6,000 6,000
TOTAL EQUITY & 967,000 540,000
LIABILITIES
====== ======

ASSETS:
Land 120,000 150,000 170,000
Equipment 620,000 480,000 330,000
Accumulated Depreciation -380,000 -170,000
Shares in Subsidiary 500,000
Company
Inventory 92,000 75,000 80,000
Cash 15,000 5,000 5,000
TOTAL ASSETS 967,000 540,000
====== ======
FACTS:

On 1 July 2015, Parent Company acquired all the issued share

capital of Subsidiary Company, giving an exchange 100,000
shares in Parent Company, having a fair value, giving an
exchange 100,000 shares in Parent Company, having a fair
value of % 5 per share.

At acquisition date, Subsidiary Company has an unrecorded

patent with a fair value of $20,000, and contingent liability
with a fair value of $15,000. Tax rate is 30%.
 ACQUISITION ANALYSIS
Net fair value of identifiable assets and liabilities of Subsidiary Company

7 Share capital 300,000

Add: Retained earnings 140,000 440,000 440,000

70% 30%
WORKSHEET ADJUSTING ENTRIES: Valuation Tax Liability
1 Land fair value 170,000
Less: Land carrying amount 150,000 20,000 14,000 6,000

2 Equipment fair value 330,000

Less: Equipment carrying 480,000-170,000 310,000 20,000 14,000 6,000

3 Inventory fair value 80,000

Less: Inventory carrying amount 75,000 5,000 3,500 1,500

4 Unrecorded patent 20,000 14,000 6,000

5 Unrecorded contingent liability (15,000) (10,500) (4,500)

Total Net Fair Value 475,000 15,000

Goodwill computation:
Parent issued 100,000 shares giving exchange to
Subsidiary at $5 per share 500,000
Less: Total Net Fair Value 475,000
6 GOODWILL 25,000

WORKSHEET ADJUSTING ENTRIES: Debit Credit

1 Land 20,000
Deferred Tax Liability 6,000
Business Combination Valuation Reserve 14,000

2 Accumulated Depreciation - Equipment 170,000

Equipment 150,000
Deferred Tax Liability 6,000
Business combination valuation reserve 14,000

3 Inventoty 5,000
Deferred Tax Liability 1,500
Business combination valuation reserve 3,500

4 Patent 20,000
Deferred Tax Liability 6,000
Business combination valuation reserve 14,000

5 Business combination valuation reserve 10,500

Deferred Tax Liability 4,500
Contingent Liability 15,000

6 Goodwill 25,000
 Business combination valuation reserve 25,000

7 Retained earnings 140,000

Share Capital 300,000
Business Combination Valuation reserve 60,000
Shares in Subsidiary 500,000

Business Combination Valuation Reserve

5 10,500 1 14,000
7 60,000 2 14,000
3 3,500
4 14,000
8 25,000
70,500 70,500

Deferred Tax Liability

5 4,500 1 6,000
2 6,000
3 1,500
4 6,000
4,500 19,500
15,000
ility