Answer to Question #200034 in Management for susan

Question

1. Horizon Limited acquired 60% stake in Hope Ltd. Horizon Limited paid INR 144 millions in cash for their interest in Hope Ltd. The fair value of the assets of Hope Ltd is INR 360 millions, and the fair value of its liabilities is INR 180 millions. Pass journal entries for the acquisition as per Ind-AS guidelines for the below:

a. Entry or entries for takeover of assets and liabilities (5 Marks)

b. Define the term purchase consideration. Pass Entry or entries for payment of purchase consideration (5 Marks) (Make suitable assumptions if required and mention the same) 

Answer 1

a. Entry or entries for takeover of assets and liabilities (5 Marks)

Assumed liabilities

When an individual or business gets control over the other entities by purchasing its assets or liabilities or attaining net assets, or increasing substantial equity interests, for instance, transactions acknowledged as Business Combination as per Ind-AS 103. But, the word regulator must be engaged founded on the description as revealed in Ind-AS 110.

The horizon ltd may attain 60% of the price of Hopes ltd assets. The quantity outstanding as the business reimburses the cash payment and the remaining remunerated in the future. The horizon ltd may take responsibility for hope ltd liabilities by approving to compensate some sum when they found unpaid. The presumed liabilities take account of the mortgage notes billed and the property tax. All these were preserved as recently generated liabilities if the substantial effect happens because of future flows at an assumed rate that is accurate due to conditions transpiring when making trades to gain the 60% assets of Hope ltd.

Acquisition of assets

·        Assets acquired Dr 360 million

·        Notes payable cry 360 million

Assumed liabilities

·        Acquired asset Dr 360 million

·        Acquiring liability 216 million

·        Cash interest cr. 144 million

b. Define the term purchase consideration. Pass Entry or entries for payment of purchase consideration (5 Marks) (Make suitable assumptions if required and mention the same)

Purchase consideration in the commercial amalgamation transaction intends to be computed as the Total fair value of Assets procured, comprising cash, Total liabilities earned at fair value, and the procurer's equity interest. But, at times, the assets and liabilities conveyed are not expelled from the business. In the procedure, the corporation pays consideration off the record as it pays in obtaining the investments. Hope ltd offers 60% in the amalgamation in the merger procedure and allocates it to Horizon limited. In the constitutional consolidation, Horizon attains the authorized entity, within the procurement reflection get compensated to the horizon ltd.

The following admissions are implemented to document the acquisition of a company.

Debit the company acquisition account with the INR 144 million as the contracted 60% stock in Horizon limited.

Debit the numerous assets annexed the cost upon which the business needs to document them in its books. The current fair price of the business assets is INR 360 million, and credit the liabilities were assimilated by the cost settled upon in the firm's procurement.

Credit the company acquisition account with the procurement deliberation; the credit quantity for the corporation is INS 180 million. The reasonable sum of credit surpassing the debits makes the dissimilarity reflected generosity and be and get subtracted.

The amount settled surpasses the credit; an added sum is deliberated as a capital turnover.

Payment to the Hope Ltd.

Credit bank with 144 million