Give the journal entry to recognize the employee stock option expense in year 1.

Briefly explain why the change in the estimated number of stock options in year 20X2 is not accounted for as an adjustment to the amount recognized in the 20X1.

QUESTION 3 BUSINESS COMBINATIONS                                                          

M Ltd acquired all the assets and liabilities of G Ltd on 20 December 20X1, which is the date of acquisition. The book values of G Ltd’s assets and liabilities at 20 December 20X1 are given in column (2) below. In exchange for the acquisition, M Ltd offered its own ordinary shares having a fair value of $200,000 on 20 December 20X1. The balance sheet date is 31 December 20X1. Because of the time constraint, M Ltd could estimate only the provisional fair values reported in column (3) below before the 20X1 financial statements could be prepared. Only after the 20X1 financial statements were prepared in 20X2 was M Ltd able to estimate the final fair values reported in column (4) below.

(1)	(2)	(3)	(4)
	Book value	Provisional fair value	Final fair value
Assets
Cash	$10,000	$10,000	$10,000
Accounts Receivable	$20,000	$18,000	$18,000
Inventories	$25,000	$22,000	$22,000
Property, plant and equipment	$40,000	$50,000	$60,000
Investments in shares of listed companies	$60,000	$75,000	$75,000
Total assets	$155,000	$175,000	$185,000
Liabilities
Accounts payable	$10,000	$10,000	$10,000
Long-term debentures payable	$20,000	$18,000	$19,000
Total liabilities	$30,000	$28,000	$29,000
Equity
Share capital	100000
Retained earnings	$25,000
Total equity	$125,000
Total liabilities and equity	$155,000

G Ltd had a research and development project in progress, which was fair valued at $20,000 by M Ltd.

Required

1. Calculate the goodwill/bargain purchase gain arising from the acquisition on 20 December 20X1
2. What is goodwill in NZ IFRS 3 designed to represent? Briefly explain whether goodwill always represents only what it is designed to represent. You need to refer to specific paragraphs of NZ IFRS 3
3. Give the journal entries on 20 December 20X1.                                            
4. Give the journal entries, if any, after the final fair values were determined.