1. On 1 December 2013, Grapefruit Ltd took over the operation of Lime Ltd. At that date the assets and liabilities of Lime Ltd were:

                                                                  Carrying Amount            Fair Value

                   Cash                                           20 000                           20 000

                   Receivables                                  40 000                           38 000

                   Inventory                                     27 000                           42 000

                   Property, Plant and Equipment         135 000                         157 000

                   Accounts Payable                          (37 000)                        (39 000)

                   Employee Entitlements                   (41 000)                        (46 000)

Grapefruit Ltd acquired all of the assets except cash plus an unrecorded trademark owned by Lime Ltd which Grapefruit Ltd estimated to be worth $30 000 at acquisition date. In exchange for these assets Grapefruit gave the shareholders of Lime Ltd 52 000 Grapefruit Ltd shares each worth $2.80, and sufficient additional cash to pay all outstanding liabilities including liquidation costs of $9 000. Acquisition related costs amounted to $15 000.

Required

Calculate the fair value of the net identifiable assets acquired by Grapefruit Ltd, show all workings.

2. How and when is goodwill measured?

3. How are directly attributable acquisition related costs accounted for? Why?

4. On 1 April 2013, Lemon Ltd acquired all of the issued shares of Orange Ltd. At this date, the share capital of Orange Ltd consisted of 70 000 ordinary shares issued at $2.60 each. Under the terms of the acquisition Lemon Ltd is to give each shareholder of Orange Ltd for each five (5) Orange Ltd shares held two (2) Lemon Ltd shares and $1.50 cash . The fair value of a Lemon Ltd share is $3.35. It will cost Lemon Ltd $ 750 to issue the new shares.

Required

Prepare the journal entries to record the acquisition.

5. List two indicators which can assist in assessing which entity is the acquirer in a business combination.

6. Define control.

7. On 1 July 2013 Cumquat Ltd acquired the operating division of Mandarin Ltd. At that date the assets and liabilities of the operating division were:

                                                                                          $

                            Receivables                                             25 000

                            Inventory                                                17 000

                            Land                                                     160 000

                            Plant and Equipment (net)                     82 000

                            Accounts Payable                                 (36 500)

                            Loan Payable                                        (40 000)

All items are recorded at fair value with the exception of inventory ($23 000), land ($180 000) and loan payable ($43 000). In exchange, Cumquat Ltd gave Mandarin Ltd 50 000 Cumquat Ltd shares with a fair value of $2.50 each, a portfolio of listed shares (fair value $51 000; carrying value $40 000) and $59 000 cash. Costs of issuing the new shares were $900.

Required

Prepare the acquisition analysis.

8. Name two types of business combination which are not covered by the provisions of AASB 3.

9. Why is the concept of control essential to accounting for business combinations?

10. On 1 April 2013, Lemon Ltd acquired all of the issued shares of Orange Ltd. At this date, the share capital of Orange Ltd consisted of 70 000 ordinary shares issued at $2.60 each. Under the terms of the acquisition Lemon Ltd is to give each shareholder of Orange Ltd for each five (5) Orange Ltd shares held two (2) Lemon Ltd shares and $1.50 cash. The fair value of a Lemon Ltd share is $3.35. It will cost Lemon Ltd $ 750 to issue the new shares.

Required

Calculate the cost of the business combination, show all workings.

11. What steps should an accountant take immediately after calculating that a gain on bargain purchase has arisen from a business combination transaction?

12. What is the key difference between identifiable assets and goodwill?

13. On 1 July 2013 Cumquat Ltd acquired the operating division of Mandarin Ltd. At that date the assets and liabilities of the operating division were:

                                                                                          $

                            Receivables                                             25 000

                            Inventory                                                17 000

                            Land                                                     160 000

                            Plant and Equipment (net)                     82 000

                            Accounts Payable                                 (36 500)

                            Loan Payable                                        (40 000)

All items are recorded at fair value with the exception of inventory ($23 000), land ($180 000) and loan payable ($43 000). In exchange, Cumquat Ltd gave Mandarin Ltd 50 000 Cumquat Ltd shares with a fair value of $2.50 each, a portfolio of listed shares (fair value $51 000; carrying value $40 000) and $59 000 cash. Costs of issuing the new shares were $900.

Required

Prepare the journal entries to record the above acquisition.

14. What is a gain on bargain purchase and how is it accounted for?

15. On 1 January 2013 Mango Ltd took over the operations of Lychee Ltd and recorded acquired goodwill worth $15 000. On 13 February 2013 the accountant was advised that the fair value determined for land acquired under that acquisition was flawed and had understated the value of the land by $25 000. What action, if any, should the accountant take? Show any necessary journal entries.

16. In accounting for a business combination assets and liabilities acquired and assets and equity given up are measured at fair value on acquisition date. Does this mean that goodwill is also measured at fair value on that date?

17. Fred Walker the accountant for Tamarind Ltd is attempting to record the company's recent acquisition of PawPaw Ltd. However, he is unable to determine if the acquisition date is 1 November 2013 or 14 November 2013. The managing director has suggested that Fred simply chooses one date as ‘they are so close it will not matter'. Is the managing director correct?

18. On 1 December 2013, Grapefruit Ltd took over the operation of Lime Ltd. At that date the assets and liabilities of Lime Ltd were:

                                                                  Carrying Amount            Fair Value

                   Cash                                               20 000                           20 000

                   Receivables                                    40 000                           38 000

                   Inventory                                       27 000                           42 000

                   Property, Plant and Equipment    135 000                         157 000

                   Accounts Payable                        (37 000)                        (39 000)

                   Employee Entitlements               (41 000)                        (46 000)

Grapefruit Ltd acquired all of the assets except cash plus an unrecorded trademark owned by Lime Ltd which Grapefruit Ltd estimated to be worth $30 000 at acquisition date. In exchange for these assets Grapefruit gave the shareholders of Lime Ltd 52 000 Grapefruit Ltd shares each worth $2.80, and sufficient additional cash to pay all outstanding liabilities including liquidation costs of $9 000. Acquisition related costs amounted to $15 000.

Required

Calculate the cost of the business combination, show all workings.

19. What is goodwill?

20. On 1 December 2013, Grapefruit Ltd took over the operation of Lime Ltd. At that date the assets and liabilities of Lime Ltd were:

                                                                  Carrying Amount              Fair Value

                   Cash                                            20 000                           20 000

                   Receivables                                   40 000                           38 000

                   Inventory                                      27 000                           42 000

                   Property, Plant and Equipment          135 000                         157 000

                   Accounts Payable                          (37 000)                        (39 000)

                   Employee Entitlements                   (41 000)                        (46 000)

Grapefruit Ltd acquired all of the assets except cash plus an unrecorded trademark owned by Lime Ltd which Grapefruit Ltd estimated to be worth $30 000 at acquisition date. In exchange for these assets Grapefruit gave the shareholders of Lime Ltd 52 000 Grapefruit Ltd shares each worth $2.80, and sufficient additional cash to pay all outstanding liabilities including liquidation costs of $9 000. Acquisition related costs amounted to $15 000.

Required

Determine if the business combination resulted in a goodwill asset being acquired or a gain on bargain purchase being earned.