On 1 January 2021, Brisbane Ltd acquired all the issued shares in Sydney Ltd. At that date, the plant of Sydney Ltd had a fair value of $20 000 more than its carrying amount and an estimated useful life of 5 years. Sydney Ltd depreciates the plant on a straight-line basis. The plant was still in the business at 30 June 2022. The business combination valuation entries in relation to the plant as at 30 June 2022 will include:
I. Adjustments to the current depreciation expense
II. Adjustments to retained earnings (opening balance)
III. Transfers from business combination valuation reserve to retained earnings
IV. Adjustments to the plant account to recognise the fair value adjustment at acquisition date

A) I and IV only.
B) II and III only.
C) I, II and IV only.
D) I, II, III and IV.

Question

harmanpreet singh · Accepted Answer

Final Answer : C, Explanation :  I - Adjustments to the current depreciation expense will be necessary to reflect the fair value adjustment at acquisition. As the plant was still in use at 30 June 2022, the depreciation expense will need to be adjusted to reflect the increased carrying amount resulting from the fair value adjustment at acquisition.II - Adjustments to retained earnings (opening balance) will also be required to reflect the fair value adjustment at acquisition. The adjustment will increase the opening balance of retained earnings.III - Transfers from business combination valuation reserve to retained earnings will not be required as the business combination valuation reserve will have been fully transferred to retained earnings by 30 June 2022.IV - Adjustments to the plant account to recognise the fair value adjustment at acquisition date will be necessary to reflect the increased carrying amount of the plant resulting from the fair value adjustment at acquisition.

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