Lee-Ann Ltd Acquired All the Voting Shares in Pamela Ltd

question 5

Multiple Choice

Lee-Ann Ltd acquired all the voting shares in Pamela Ltd. At the time of the takeover the following amounts are relevant:
$\begin{array}{c}\begin{array}{lll} \text { Recorded by Pamela }\\ \text { Property}\\ \text { }\\ \text {Intangible patent }\\ \text { Accounts receivable }\\ \text { }\\ \text { Vehicles }\\ \text { }\\ \text { }\\ \text { }\\ \text { }\\ \text { Accum. depreciation }\\ \text { vehicles }\\ \text { Inventory }\\\end{array}\begin{array}{lll} \$\\ \text {7500 } \\ \text { }\\ \text { 0 }\\ \text {30000 }\\ \text { }\\120000\\\\\\\\\\24000\\\\85000\\\end{array}\begin{array}{lll} \text { Comments}\\ \text { valued at cost, fair value is \( \$ 90000 \) . }\\ \text { Group policy is to use the revaluation model. }\\ \text { not recognised, but valued by Lee-Ann at \( \$ 30000 \) }\\ \text {estimated uncollectible debts are thought to be \( \$ 10000 \) }\\ \text { higher than those recorded.}\\ \text { straight line depreciation is used by Pamela. }\\ \text {Group policy is for reducing balance. }\\ \text {However, no other group member has }\\ \text { vehicles of this specialist kind and straight-line is thought to be a reasonable method. }\\ \text { Vehicles have ten year life. }\\ \text { vehicles purchased two years ago, no scrap value. }\\ \text { }\\ \text {discovered to be over-valued by \( \$ 10000 \) , due to an erro }\\\end{array}\end{array}$


-With regard to inventory, which is the correct consolidation adjustment entry at control date?

• A)Dr inventory expense $10 000; credit inventory
• B)Dr inventory expense $10 000; credit fair value reserve
• C)Dr fair value reserve $10 000; credit inventory
• D)No entry required

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