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Chris Stansberry
on Nov 02, 2024

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On 1 January 2022, Lemon Ltd acquired all the issued shares in Meringue Ltd. At that date, Meringue Ltd recognised in the notes to its financial statements a contingent liability with regards to a loan guarantee that had a fair value of $30 000. The contingent liability was settled at 31 December 2022 by Meringue Ltd making a payment of $20 000. Ignoring the tax effect, the business combination valuation entries in relation to the contingent liability for the year ended 30 June 2023 will include:
I. Adjustments to expenses recognised on settlement
II. Transfers from business combination valuation reserve to retained earnings
III. Adjustments to the liability account to recognise the fair value adjustment at acquisition date

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

Contingent Liability

A liability that may occur depending on the outcome of a future event.

Business Combination Valuation Entries

Journal entries made in accounting to record the assets and liabilities at their fair values in a business acquisition.

  • Grasp the mechanics of the consolidation process, focusing on the creation of consolidation worksheets and the significance of adhering to uniform accounting policies.
  • Comprehend the consequences of business integrations on financial documentation, including the amortization of revalued assets and the settlement of possible liabilities.
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Erika MonikaNov 02, 2024
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