Gasoline LTD is a chemical company that produced 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:
Assets R R
Non-current Assets ?
Property, plant and equipment 9 300 000
Investment property 3 745 000
Intangible assets 746 000
Non-current assets 6 255 000
Inventory 5 470 000
Trade and other receivables 565 000
Income receivable 220 000
Total Assets ?
Equity and liabilities
Equity
Equity and reserves ? ?
Non-current liabilities 619 500
loan (long term) 330 000
Debentures 289 500
Current liabilities 1 196 500
trade and other payable 744 000
Bank overdraft 55 500
Total Equity and liabilities ?
Gasoline Limited uses revaluation model to measure all assets and items are at fair value at year-end. The market interest is 6.5% per annum.
Financial year-end for WV 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 the related workings)
To journalize the entries related to the acquisition of Gasoline Limited, we need to determine the fair value of the identifiable assets and liabilities acquired by WV Limited.
1. Calculation of the fair value of the identifiable assets and liabilities:
Property, plant and equipment: $9,300,000
Investment property: $3,745,000
Intangible assets: $746,000
Inventory: $5,470,000
Trade and other receivables: $565,000
Income receivable: $220,000
Loan (long term): $330,000
Debentures: $289,500
Trade and other payable: $744,000
Bank overdraft: $55,500
Total fair value of identifiable assets: $20,864,000
Total fair value of identifiable liabilities: $1,423,500
2. Journal entries for the acquisition of Gasoline Limited:
a) For the fair value of identifiable assets acquired:
Dr. Property, plant and equipment (9,300,000)
Dr. Investment property (3,745,000)
Dr. Intangible assets (746,000)
Cr. Non-current liabilities - loan (long term) (330,000)
Cr. Non-current liabilities - debentures (289,500)
Cr. Trade and other payable (744,000)
Cr. Bank overdraft (55,500)
b) For the acquisition cost paid by WV Limited:
Dr. Investment in Gasoline Limited (20,864,000)
Cr. Cash (21,450,000)
c) For the goodwill arising from the acquisition:
Dr. Goodwill (586,000)
Cr. Investment in Gasoline Limited (586,000)
d) For the elimination of Gasoline Limited's equity and reserves:
Dr. Equity and reserves (20,864,000)
Cr. Investment in Gasoline Limited (20,864,000)
3. Journal entries for the adjustment required due to different financial year-ends:
a) Accrual of depreciation expense on property, plant, and equipment for 3 months (October to December):
Dr. Depreciation expense (Property, plant and equipment/3) (775,000)
Cr. Accumulated depreciation (Property, plant and equipment/3) (775,000)
b) Accrual of interest expense on debentures for 3 months (October to December):
Dr. Interest expense (Debentures x Market interest rate x 3/12) (?)
Cr. Accrued interest payable (Debentures x Market interest rate x 3/12) (?)
Note: The amounts for interest expense and accrued interest payable need to be calculated using the provided information.
Overall, the journal entries would vary based on the specific amounts and circumstances. The above entries are just an illustration of the possible journal entries required for the given scenario. It is recommended to consult with an accounting professional for accurate journal entries.