Gingimup Ltd purchased all the equity of Kindawansa Ltd on 30 June 2015.At that time the carrying value of the net assets of Kindawansa was $1 200 000.This amount was made up in equity as follows: share capital $1 000 000; retained earnings $200 000.Kindawansa has held some valuable land for a long time (purchased at $ 1 200 000),but has not revalued it.Its fair value at 30 June 2015 was $2 800 000 (all other non-current assets are recorded at fair value).Gingimup Ltd paid cash consideration of $3 000 000 for Kindawansa Ltd.Assuming that the land has not been revalued in the controlled entity's books,what are the elimination entries required to reflect the purchase of Kindawansa Ltd?

Question

Quizplus · Accepted Answer

The correct elimination entries must reflect the fair value adjustments, goodwill calculation, and the consideration paid. The land's fair value adjustment is $1,600,000 ($2,800,000 fair value - $1,200,000 carrying value). This adjustment increases the revaluation surplus and creates a deferred tax liability (assuming a 30% tax rate, $480,000 = 30% of $1,600,000). The total net assets acquired are adjusted to $2,800,000 ($1,200,000 original net assets + $1,600,000 fair value adjustment for land). The goodwill is calculated as the excess of consideration over the fair value of net assets acquired, which is $200,000 ($3,000,000 consideration - $2,800,000 fair value of net assets). The entries correctly reflect these adjustments and the acquisition accounting requirements.

Gingimup Ltd Purchased All the Equity of Kindawansa Ltd on 30