Answer to Question #194133 in Accounting for Andy

Question

Group Accounting Homework 7:

IGNORE VAT AND TAXATION

Peazy purchased 100% of the equity shares (and voting rights) of Simple in exchange for a 

cash payment of R900 000 on 1 September 2020. At acquisition date, the total assets of Simple 

had a carrying value of R2 500 000 and its total liabilities had a carrying value R2 000 000.

The equity of Simple at acquisition date consisted of share capital and retained earnings 

amounting to R200 000 and R300 000 respectively. The fair values of Simple’s property, plant 

and equipment was undervalued by R500 000 and provisions (liabilities) amounting to 

R100 000 was not recognised at the acquisition date.

REQUIRED:

a) Calculate the fair value of the net asset acquired as part of the business combination at 

acquisition date.

(5 Marks)

b) Process the pro forma journal entry/ies required to prepare the consolidation trial balance 

at acquisition date.

(5 Marks)

Answer 1

Solution: