Question

On January 2015, Lynne's Corporation paid $340,000 for all of Stone Rock Company outstanding common stock....

On January 2015, Lynne's Corporation paid $340,000 for all of Stone Rock Company outstanding common stock. On that date Stone Rock recorded assets and liabilities were as follows:

Cost Fair Value
Cash and Receivables $50,000 $50,000
Inventory 120,000 125,000
Buildings and Equipment (net) 200,000 240,000
Liabilities (100,000) (100,000)
Net assets $270,000 $315,000

Based on the information above, what would the excess cost over book value be reported as?

Business   Accounting   
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Answer #1

IFRS3 deals with accounting for  Business Combination. Standard provides that an acquirer shall record all the assets and liabilities of an acquiree including identifiable but not recorded assets shall be recognised at fair value. Further, standard provides that any excess of fair value of net assets over purchase consideration shall be recorded as Bargain Purchase and an excess of purchase consideration over net assets shall be recorded as Goodwill. Such Goodwill shall be tested for impairment based on the standard on impairment of non-financial assets and such goodwill shall not be amortized or depreciated.

Accordingly, Lynne's Corporation shall $25,000 as Goodwill in Consolidated Financial Statement.

Purchase consideration- 340,000

Less: Net assets fair value- (315,000)

Goodwill- $25,000

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