The journal entry on acquisition of 100% shares of Jeff Ltd by Mutt Ltd would be as follows on 1st July 2016.
Calculation of fair value
Fair value of identifiable assets
and liabilities of Ursa Ltd = $80000 + $68800
+$12000[1] (BCVR – Patent)
+ $8000 (BCVR – Plant )+ 6400 ( BCVR – Inventory)
= $175200
Consideration transferred = $174800
Goodwill/Capital Reserve = $
Journal Entry
- Plant A/c Dr 8000
To business Combination Reserve Cr 8000
- Cost of sales A/c Dr 6400
To business Combination Reserve Cr 6400
- Patent A/c Dr 12000
To business Combination Reserve Cr 12000
- By Business combination Reserve Cr 400
To Capital Reserve 400
Pre Acquisition Entry at 30 June 2016
- Share Capital A/C Dr 80000
Retained Earnings A/c Dr 68800
Business Combination Reserve 26000
To Shares in Mutt Ltd Cr 174800
Post Entry at 31 July 2017
- Depreciation A/c Dr 4000
To Accumulated depreciation Dr 4000
( 10% of the 40000 Value of Plant )
- Goodwill A/c Dr 72000
To Patent A/c 72000
( As the patent has infinite life , it has been transferred to goodwill )
- Impairment loss A/c Dr 1200
To Goodwill A/c Cr 1200
( Being impairment of 1200 )
- Retained Earnings A/c 20000
To General Reserve A/c 20000
( Being Amount transferred to GR from retained Earning )
[1] As the patent has infinite life same should be not considered as Asset in a calculation, however, should be considered as goodwill.