QUESTION FOUR(30 MARKS)
Gasoline Limited is a chemical company that produces a wide variety of chemical products. WV Limited is a shipping company that transports oil and other liquid products around the world. WV recently signed an agreement to pay R21 450 000 on 2 October 2017 for a 100% shareholding in Gasoline Limited.
Gasoline Limited Statement of Financial Position as at 30 September 2017 is as follows:
Gasoline Limited uses the Revaluation Model to measure all assets and items are at fair value at year-end. The market interest rate is 6,5% per annum.
Financial year-end for WV Limited and Gasoline Limited is 31 December 2017 and 30 September 2017 respectively.
Required:
Journalise all entries that relate to the Acquisition of Gasoline Limited. (Show all related workings.)
To journalize the entries relating to the acquisition of Gasoline Limited by WV Limited, we need to consider the following:
1. Calculation of Goodwill:
Goodwill = Purchase Consideration - Fair Value of Net Assets
= R21,450,000 - (R100,000 + R1,000,000 + R500,000 + R600,000 + R700,000)
= R18,550,000
2. Journal entries for WV Limited:
a) To record the acquisition of Gasoline Limited:
Date: 2 October 2017
Debit Credit
Goodwill 18,550,000
Cash 21,450,000
-------------------------------
21,450,000 18,550,000
b) To record the investment in Gasoline Limited:
Date: 2 October 2017
Debit Credit
Investment in Gasoline Limited 21,450,000
Cash 21,450,000
-------------------------------
21,450,000 21,450,000
3. Journal entry for Gasoline Limited:
a) To record the increase in share capital:
Date: 30 September 2017
Debit Credit
Share Capital 100,000
Revaluation Reserve 1,000,000
Retained Earnings 500,000
Land 600,000
Buildings 700,000
-------------------------------
1,900,000 1,900,000
4. Journal entry for the revaluation of assets, using the revaluation model:
Date: 30 September 2017
Debit Credit
Land 500,000
Revaluation Reserve 500,000
-------------------------------
500,000 500,000
5. Journal entry to eliminate the impact of revaluation on retained earnings:
Date: 30 September 2017
Debit Credit
Revaluation Reserve 500,000
Retained Earnings 500,000
-------------------------------
500,000 500,000
Note: The specific amounts (R100,000, R1,000,000, R500,000, R600,000, and R700,000) have been used based on the information provided in the question. Please adjust the values accordingly based on the actual amounts given in the original data.