On 1 July Walter Ltd acquired 100% of the share capital of Kristoff Ltd. At that date, the carrying amount of Kristoff Ltd's machinery was $300 000. The fair value of the machinery on acquisition date was $330 000. The company tax rate was 30%. What is the amount of the business combination valuation reserve that will be recognised on consolidation?
A) $21 000
B) $30 000
C) $33 000
D) $9 000

Question

Quizplus · Accepted Answer

The fair value adjustment for the machinery is $30,000 ($330,000 - $300,000). The deferred tax liability on this adjustment is $9,000 ($30,000 x 30%). The business combination valuation reserve is the fair value adjustment minus the deferred tax liability: $30,000 - $9,000 = $21,000.

On 1 July Walter Ltd Acquired 100% of the Share