Fruit Ltd sold all of its non-current assets and liabilities to Salad Ltd on 1 July 2021.
Question:
Fruit Ltd sold all of its non-current assets and liabilities to Salad Ltd on 1 July 2021. The Balance sheet of Fruit Ltd at the date of acquisition was as follows:
Item | Carrying amount |
Item | Carrying amount |
Current assets: | |
Cash | $85,000 |
Non-current assets: | |
Land & Buildings | $250,000 |
Plant & Machinery | $ 80,000 |
Goodwill | $ 35,000 |
Total Assets | $450,000 |
Non-current liabilities: | |
Mortgage |
$200,000 |
Total Liabilities | $200,000 |
Net Assets | $250,000 |
Equity: | |
Share capital | $150,000 |
Retained earnings | $100,000 |
Total equity | $250,000 |
The Plant & Machinery had a cost of $128,000 and accumulated depreciation of
$48,000. The fair value of the Plant & Machinery was $91,000. All other assets are shown at fair value. The acquisition was satisfied by the issue of 10,000 ordinary shares (fully paid) in Salad Ltd. Assume the identifiable assets and liabilities acquired constituted a business. The share price at various dates as listed on the ASX for Salad Ltd is shown in the table below:
Date | Share price (per share) |
On issue | $10 |
30 June 2021 | $11.50 |
1 July 2021 | $12.50 |
30 June 2022 | $11.75 |
Average for 2021 year | $13 |
Required:
Do a detailed acquisition analysis in good format showing the calculation of the goodwill /gain on bargain purchase, show your workings. Marks are awarded for clear formatting.
Show your calculation of goodwill /bargain on purchase for question in the table below, expand the table as needed:
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon