1. Prepare the balance sheets of Parent Ltd and the consolidated balance sheet as at 1 January… 1 answer below »

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1. Prepare the balance sheets of Parent Ltd and the consolidated balance sheet as at 1 January 20X7 after each transaction, using for each question the balance sheets of Parent Ltd and Daughter Ltd as at 1 January 20X7 which were as follows:

Parent Ltd Daughter Ltd

£ £

Ordinary shares of £1 each 40,500 9,000

Retained earnings 4,500 1,800

45,000 10,800

Cash 20,000 2,000

Other net assets 25,000 8,800

45,000 10,800

(a) Assume that on 1 January 20X7 Parent Ltd acquired all the ordinary shares in Daughter Ltd for £10,800 cash. The fair value of the net assets in Daughter Ltd was their book value.

(b) The purchase consideration was satisfied by the issue of 5,400 new ordinary shares in Parent Ltd. The fair value of a £1 ordinary share in Parent Ltd was £2. The fair value of the net assets in Daughter Ltd was their book value.

Question 2

(a) On 1 January 20X7 Parent Ltd acquired all the ordinary shares in Daughter Ltd for £16,200 cash. The fair value of the net assets in Daughter Ltd was their book value.

(b) The purchase consideration was satisfied by the issue of 5,400 new ordinary shares in Parent Ltd. The fair value of a £1 ordinary share in Parent Ltd was £3. The fair value of the net assets in Daughter Ltd was their book value.

 
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