Question 1 Ladysmith Ltd has recently diversified by taking over the operations of Kimberley Ltd at a cost of $10 million. Kimberley Ltd manufactures and sells a cleaning cloth called the Supaswipe, which was developed by Kimberley Ltds highly trained and innovative research staff. The unique nature of the coating used on the Supaswipe has resulted in Kimberley Ltd acquiring a significant share of the South African market. A recent expansion into the Equatorial African market has proved successful. As a result of the takeover, Ladysmith Ltd acquired the following assets: Land and buildings 3,200,000(FV at the date of acquisition) Production machinery 2,000,000 Inventory 1,800,000 Accounts receivable 700,000 Total 7,700,000 In addition to the above, Kimberley Ltd owned, but had not recognised, the following: trademark Supaswipe patent formula for the special coating. The research staff of Kimberley Ltd have agreed to join the staff of Ladysmith Ltd and will continue to work on a number of projects aimed at producing specialised versions of the Supaswipe.The directors have requested your assistance in accounting for the acquisition of Kimberley Ltd. In particular, they are uncertain as to the treatment of the $2.3 million discrepancy between the assets recorded by Kimberley Ltd and the price paid for the company. Required Write to the directors outlining the alternative courses of action available in relation to the $2.3 million discrepancy. Your reply should cover the issues of asset recognition, measurement, classification and subsequent accounting treatment.