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Question: 3. Nat Ltd purchases a 100 per cent interest in Angourie Ltd. The cost of the acquisition is $1 400 000 plus associated legal costs
3. Nat Ltd purchases a 100 per cent interest in Angourie Ltd. The cost of the acquisition is $1 400 000 plus associated legal costs of $70 000. As at the date of acquisition, the statement of financial position of Angourie Ltd shows:
Assets
Current assets
Cash - $20 000
Accounts receivable - $80 000
Allowance for doubtful debts - $(10 000) $70 000
Inventory - $100 000
Total current assets - $190 000
Non-current assets
Land and buildings, at cost - $850 000
Accumulated depreciationland and buildings - $(150 000) $700 000
Plant and equipment - $510 000
Accumulated depreciationplant and equipment - $(100 000) 4410 000
Total non-current assets - $1 110 000
Total assets - $1 300 000
Liabilities
Current liabilities
Accounts payable - $90 000
Bank overdraft - $20 000
Total current liabilities - $110 000
Non-current liabilities
Bank loan - $190 000
Total liabilities - $300 000
Net assets - $1 000 000
Additional information:
The assets and liabilities of Angourie Ltd are fairly stated except for land and buildings, which have a fair value of $800 000. Angourie Ltd has a brand name that is not recognised on the statement of financial position and that has a fair value of $50 000. There are no contingent liabilities.
Required:
a) Determine, for accounting purposes, the amount of goodwill that has been acquired by Nat Ltd.
b) Why do you think that Nat Ltd would have been prepared to pay for goodwill?
c) Can Nat Ltd revalue the goodwill upwards in a subsequent period?
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