Accounts payable 160000 current tax liability 88000

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Accounts payable 160,000 Current tax liability 88,000 Provision for annual leave 32,000 The financial year for Rusty Ltd is 1 October 2023 to 30 September 2024. Required: 2
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i) Prepare the journal entries for Rusty Ltd to record the business combination at 1 October 2023, assuming the fair value of each Rusty Ltd share at acquisition date is $8.20. ii) Prepare the journal entries for Rusty Ltd to record the business combination at 1 October 2023, assuming the fair value of each Rusty Ltd share at acquisition date is $7.40. Answer: a) the assets and liabilities are measured at fair value, b) A gain on bargain purchase that is the difference that arises when an acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the acquirer’s cost of the business combination. It is a gain taken straight to the P&L c) i)Net fair value of identifiable assets and liabilities of Spark Ltd = $1520 000 Cost of the combination = 200 000 x $8.20 = $1640 000 Goodwill = $1640 000 - $1520 000 = $120 000 Cash Dr 600 000 Furniture & Fittings Dr 320 000 Accounts Receivable Dr 80 000 Plant Dr 800 000 Goodwill Dr 120 000 Accounts Payable Cr 160 000 Current Tax Liability Cr 88 000 Provision for Annual Leave Cr 32 000 Share Capital Cr 1640 000 ii) Cash Dr 600 000 Furniture & Fittings Dr 320 000 3
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Accounts Receivable Dr 80 000 Plant Dr 800 000 Accounts Payable Cr 160 000 Current Tax Liability Cr 88 000 Provision for Annual Leave Cr 32 000 Excess Cr 40 000 Share Capital Cr 1480 000 (Acquisition of business) ─────────────────────────────────────────────────────────────────────────── QUESTION 3 Parent acquires less than 100% of subsidiary using partial goodwill method Carla Ltd purchased 75% of the share capital of Hagen Ltd for $500 000 on 1 July 2013. At this date the equity of Hagen Ltd was: Share capital $ 200 000 General reserve 120 000 Retained earnings 80 000 At this date Hagen Ltd had not recorded any goodwill, and had all identifiable assets and
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