Big Ltd acquired all the assets and liabilities of Small Ltd on 1 July 2019. At this
Question:
Big Ltd acquired all the assets and liabilities of Small Ltd on 1 July 2019. At this date, the assets and liabilities of Rod Ltd consisted of the following:
Carrying Amount ($) | Fair Value($) | |
Assets | ||
Cash | 250,000 | 600,000 |
Accounts receivable | 450,000 | 500,000 |
Land | 200,000 | 300,000 |
Vehicle | 100,000 | 200,000 |
Accumulated depreciation -Vehicle | (20,000) | |
Liabilities | ||
Accounts payable | 150,000 | 150,000 |
Loans | 200,000 | 200,000 |
Equity | ||
Share Capital –@$6 per share | 600,000 |
|
Reserves | 30,000 |
In exchange for these assets and liabilities, Big Ltd agreed to
1- Issue 2 Big Ltd shares for every Small Ltd Share – Big Ltd shares were considered to have a fair value of $3 per share; costs of issue were $1,500
2- Transfer a piece of Land to the former shareholders of Small Ltd – the Land was carried in the records of Big Ltd at $200,000 but was considered to have a fair value of $500,000.
3- Pay $3 per share in cash to each of the former shareholders of Small Ltd. Big Ltd incurred $5000 in costs associated with the acquisition of these net assets.
Required:
- As per the Acquisition Analysis prepared on 01/07/2019, the Goodwill or gain on bargain purchase would be:
- The Journal entry to record value difference in Land (Ignore Income tax effect)
- The Journal entry to record costs associated with the acquisition of these net assets
- The Journal entry to record costs of share issue
- The Journal entry to record Goodwill or gain on bargain purchase
Advanced Financial Accounting
ISBN: 978-0078025624
10th edition
Authors: Theodore E. Christensen, David M. Cottrell, Richard E. Baker