On 1 January 2014, Cowboys Ltd acquired all the issued shares in Tate Ltd. At that date, the plant of Tate Ltd had a fair value of $20 000 more than its carrying amount and an estimated useful life of 5 years. Tate Ltd depreciates the plant on a straight-line basis. The plant was still in the business at 30 June 2015. The business combination valuation entries in relation to the plant as at 30 June 2015 will include:
I. Adjustments to the plant account to recognise the fair value adjustment at acquisition date
II. Adjustments to the current depreciation expense
III. Adjustments to retained earnings (opening balance)
IV. Transfers from business combination valuation reserve to retained earnings

Question

Quizplus · Accepted Answer

The fair value adjustment at acquisition date (I) needs to be recognized. The depreciation expense (II) must be adjusted for the increased value. Retained earnings (III) are adjusted for the accumulated depreciation on the fair value adjustment.

On 1 January 2014, Cowboys Ltd Acquired All the Issued