Zhang Ltd acquired the business of Azzam Ltd for a cash outlay of $5 000 000 on 1 July 2019. The summarised balance sheet of Azzam Ltd on that date was as follows.

Most of the assets were recorded at fair value except for inventories and land, which were assessed to have fair values of $1 000 000 and $1 100 000 respectively.

Required

(a) Determine the amount that Zhang Ltd should record as goodwill or bargain purchase on 1 July 2019.

(b) Prepare journal entries in the records of Zhang Ltd to acquire the business of Azzam Ltd on 1 July 2019.

(c) Discuss how your answer would differ if Zhang Ltd had paid $3 800 000 cash to acquire the business of Azzam Ltd.

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AZZAM LTD Summarised Balance Sheet as at 1 July 2019 Assets Cash at bank Accounts receivable Inventories Land Plant and equipment (net) Total assets Liabilities and equity Accounts payable Bank loan payable Share capital Retained earnings Total liabilities and equity $ 185.000 370000 870000 740000 2 800 000 $4965 000 520000 1350000 2250000 845000 $4965 000