At 1 Jan 2014, P Ltd acquired 60% of the shares of S Ltd for $153,000 on a cum div. basis. P Ltd had acquired 40% of the shares of S Ltd two years earlier for $80,000. This investment, classified as a financial asset, was recorded at a fair value on 1 Jan 2014 of $102,000. The changes in fair value had all been taken to other comprehensive income. At 1 Jan 2014, the equity of S Ltd consisted of:
Share capital | $160,000 | Retained earnings | 40,000 |
At this date, the identifiable assets and liabilities of S Ltd were recorded at fair value except for: | Carrying amount | Fair Value | Inventory | $40,000 | $44,000 | Plant (cost $120,000) | 100,000 | 105,000 |
At 1 Jan 2014, S Ltd’s assets and liabilities included a dividend payable of $50,000, and goodwill of $6,000. An analysis of the unrecorded intangibles of S Ltd revealed that the company had unrecorded internally generated brands, considered to have a fair value of $50,000. Further, S Ltd had expensed research outlays of $80,000 that were considered to have a fair value of $20,000. In its financial statements at 31 Dec 2013, S Ltd had reported a contingent liability relating to a potential claim by customers for unsatisfactory products, the fair value of the claim being $10,000. Tax rate is 30%.
Required:
Prepare the acquisition analysis at 1 Jan 2014.
