The purpose of the pre-acquisition entry is to:
• Prevent double counting of the assets of the economic entity.
• Prevent double counting of the equity of the economic entity.
• Recognise any gain on bargain purchase.
A simple example such as that below could be used to illustrate these points:
A Ltd has acquired all the issued shares of B Ltd. The balance sheets of both companies immediately after acquisition are as follows:
Reserves 100 Reserves 50
Cash 150 Cash 150
• The difference between ex div and cum div acquisitions.
• The effects on the acquisition journal entry in the records of the parent under each circumstance.
• The effects on the acquisition analysis.
• The differences in the pre-acquisition entries at acquisition date if the acquisition is cum div versus ex div. (the cum div entry will need to eliminate the dividend receivable raised by the parent and the dividend payable raised by the subsidiary).
a. Prepare Acquisition Analysis at 1 July 2020.
b. Prepare the consolidation worksheet entries for consolidated financial statements prepared by Syd Ltd at 30 June 2021.
c. Prepare the acquisition analysis at 1 July 2020 if Syd Ltd acquired the issued share of Mel Ltd on Ex-div basis.
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