Asked by Samantha Rader on Jun 23, 2024
Verified
On 1 January 2021, Brisbane Ltd acquired all the issued shares in Sydney Ltd. At that date, the plant of Sydney Ltd had a fair value of $20 000 more than its carrying amount and an estimated useful life of 5 years. Sydney Ltd depreciates the plant on a straight-line basis. The plant was sold to external parties on 31 December 2022. The business combination valuation entries in relation to the plant for the year ended 30 June 2023 will include:
I. Adjustments to the current depreciation expense
II. Adjustments to retained earnings (opening balance)
III. Transfers from business combination valuation reserve to retained earnings
IV. Adjustments to the plant account to recognise the fair value adjustment at acquisition date
A) III only.
B) I, and III only.
C) I, II, III and IV.
D) I, II and III only.
Business Combination Valuation Entries
Journal entries that record the valuation of assets, liabilities, and contingent liabilities at fair value in a business combination.
Depreciation Expense
The systematic allocation of the cost of a tangible asset over its useful life, reflecting the consumption of the asset's economic value.
- Understand the process of consolidation, including how to prepare consolidation worksheets and the necessity for consistent accounting policies.
- Identify the effects of mergers and acquisitions on financial reports, particularly regarding the depreciation of revalued assets and resolution of potential liabilities.
Verified Answer
GB
gizeal bahatiJun 26, 2024
Final Answer :
D
Explanation :
Since the plant was sold on 31 December 2022, there would be no current depreciation expense adjustments for the year ended 30 June 2023 (I). Adjustments to retained earnings (opening balance) (II) and transfers from business combination valuation reserve to retained earnings (III) would be necessary to reflect the disposal of the plant and the realization of the fair value adjustment made at acquisition. Adjustments to the plant account to recognize the fair value adjustment at acquisition date (IV) would have been made at the acquisition date, not in the year ended 30 June 2023.
Learning Objectives
- Understand the process of consolidation, including how to prepare consolidation worksheets and the necessity for consistent accounting policies.
- Identify the effects of mergers and acquisitions on financial reports, particularly regarding the depreciation of revalued assets and resolution of potential liabilities.