Question

Justice Ltd acquired all the assets except cash of League Ltd on 1 July 2018. On this date, the statement of financial position contained the following accounts:

Assets
Current assets
Cash	12,000
Accounts receivable	28,840
Inventory	24,880
Non-current assets
Buildings	200,000
Accumulated depreciation - building	(40,000)
Fixtures	60,000
Accumulated depreciation - fixtures	(20,000)
Plant and equipment	60,000
Accumulated depreciation - plant and equipment	(14,200)
Goodwill	1,800
Total assets	313,320
Liabilities
Current liabilities
Accounts payable	32,600
Non-current liabilities
Guarantees	31,000
Loans	74,200
Total Liabilities	137,800
Equity
Share capital (70,000 shares)	70,000
Retained earnings	105,520
Total equity	175,520
Total equity and liabilities	313,320

Justice Ltd determined that the only identifiable items not recorded at amounts equal to fair values at acquisition date were:

	Fair value
Inventory	$30,000
Buildings	200,000
Fixtures	75,000
Plant and equipment	42,000
Guarantees	(32,000)

Justice Ltd also determined that League Ltd had not recorded the accrued interest on the loans, amounting to $4,300.

In exchange for the assets of League Ltd, Justice Ltd agreed to provide sufficient additional cash to enable League Ltd to pay off its debts as well as liquidation costs of $5,000.

In addition, Justice Ltd would:
a) Pay two fully paid shares in Justice Ltd for every five shares held in League Ltd. The fair value of each Justice Ltd share was agreed to be $7. Costs of issuing the shares amounted to $4,000.

b) Provide League Ltd a patent with a fair value of $18,000. This was not recognised within Justice Ltd’s accounts at the time of acquisition.

Required:

1. Prepare the acquisition analysis in relation to the acquisition to determine the gain on bargain purchase or goodwill.

2. Prepare the journal entries in the records of Justice Ltd to record its acquisition of the assets of League Ltd at 1 July 2018. (

3. Prepare the acquisition analysis on the basis each of Justice Ltd shares was instead agreed to be $10.

Answer 1