Week06_Discussion_Question_Solutions

Week06_Discussion_Question_Solutions - Week 6 Discussion...

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Week 6 Discussion Questions 16.23 Simple direct acquisition of a business for cash O’Connor and Lyneham (a) The cost of acquisition was $100 000 cash. Journal entries for O’Connor Ltd: The fair value of the assets acquired is $90 000, and the fair value of liabilities assumed is $8 000, giving a net amount of $82 000. Accordingly there is an $18 000 discrepancy between the fair value of the net assets acquired and the cost of acquisition ($100 000 – $82 000). If there is an acquisition of a business, then under AASB 3, the excess is recognised as goodwill: Dr Plant 25 000 Dr Land 40 000 Dr Vehicles 20 000 Dr Accounts receivable 5 000 Dr Goodwill 18 000 Cr Accounts payable 8 000 Cr Bank 100 000 Acquisition of net assets of a business from Lyneham for $100 000 cash (b) The cost of acquisition was $72 000 cash In this case the cost of acquisition is $10 000 less than the fair value of the net assets acquired of $82 000 (see part (a)). Under AASB 3 the underpayment is recognised as a bargain purchase gain. The journal entry will be: Dr Plant 25 000 Dr Land 40 000 Dr Vehicles 20 000 Dr Accounts receivable 5 000 Cr Gain – bargain purchase 10 000 Cr Accounts payable 8 000 Cr Bank 72 000 Acquisition of net assets of a business from Lyneham for $72 000 cash Dr Gain – bargain purchase 10 000 Cr Profit or loss 10 000 Close account to profit or loss
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16.25 Simple direct acquisition of a business for shares McLeod and Lyneham (a) Cost of acquisition 50 000 fully paid ordinary shares. The cost of acquisition = fair value of the shares issued = 50 000 $4.25 = $212 500. The difference on acquisition = $212 500 – $180 000 = $32 500. Since the difference is positive, and we have the acquisition of a business, under AASB 3 the difference constitutes goodwill. 20X4 10 April Dr Plant 50 000 Dr Land 100 000 Dr Vehicles 35 000 Dr Accounts receivable 15 000 Dr Goodwill 32 500 Cr Accounts payable 20 000 Cr Vendor 212 500 Purchase of net assets of a business from Lyneham Pty Ltd for $212 500 Dr Vendor 212 500 Cr Paid-up capital – ordinary shares 212 500 Issue of 50 000 ordinary shares as consideration for acquisition of net assets of a business from Lyneham Pty Ltd (b) Cost of acquisition 45 000 ordinary shares (40 cents uncalled).
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This note was uploaded on 10/25/2011 for the course ACCT 5942 taught by Professor Diane during the Three '11 term at University of New South Wales.

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Week06_Discussion_Question_Solutions - Week 6 Discussion...

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