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:
|Accumulated depreciation - building||(40,000)|
|Accumulated depreciation - fixtures||(20,000)|
|Plant and equipment||60,000|
|Accumulated depreciation - plant and equipment||(14,200)|
|Share capital (70,000 shares)||70,000|
|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:
|Plant and equipment||42,000|
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.
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.
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