Problem 4 Note: Under IFRS 3, although the two companies are being amalgamated, the transaction still represents a business combination for which an acquirer must be identified. To identify the acquirer, it is important to examine the number of shares of the new entity held by each company’s shareholders. After Prong issues 60,000 new common shares, Prong's previous shareholders will hold 54% (70,000/130,000) of the total outstanding shares and Horn's previous shareholders will hold 46% (60,000/130,000) of the total outstanding shares. Prong is therefore the acquirer. Purchase price (60,000 $7) 420,000 Fair value of Horn Current assets 170,000) Plant and equipment 280,000) Other assets 20,000** Current liabilities (30,000) Long-term debt (160,000) 280,000Goodwill 140,000** Patent registration costs belonged to Prong and would therefore not be re-valued as part of the transaction since Prong is the acquirer. The transaction is essentially accounted for as a purchase of assets. The assets of Horn are recognized at fair value and the excess over the fair value of shares issued represents goodwill. Pronghorn Corporation Statement of Financial Position September 1, Year 5Plant and equipment (430,000 + 280,000) 710,000 Other assets (41,000 + 20,000) 61,000 Goodwill 140,000 Current assets (135,000 + 170,000) 305,0001,216,000
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