Question

Thor Ltd, a supplier of motor vehicle spare parts, agreed to acquire the business of a rival company, Loki Ltd, taking over all assets and liabilities as at 1 May 2021.

The consideration was payable by the issue of 10 000 shares in Thor Ltd with a fair value of $1 each and the balance by transfer of the share portfolio held by Thor Ltd. The share portfolio had a fair value as at 1 May 2021 of $75 000.

The trial balances of the two companies as at 1 May 2021 were as follows.

	Thor Ltd		Loki Ltd
	Dr	Cr	Dr	Cr
Share capital		50 000		49 000
Retained earnings		6 000		2 000
Accounts payable		1 500		5 000
Mortgage loan		100 500
Cash	25 000		6 000
Equipment (net)	50 000		45 000
Inventory	8 000		4 000
Share portfolio	70 000
Goodwill	5 000		1 000
	158 000	158 000	56 000	56 000

All the identifiable net assets of Loki Ltd were recorded by Loki Ltd at fair value except for the equipment, which were considered to be worth $30  000 (assume no tax effect). The plant had an expected remaining life of 5 years.

The business combination was completed and Loki Ltd went into liquidation. Thor Ltd incurred incidental costs of $650 in relation to the acquisition. Costs of issuing shares in Thor Ltd were $300 with an additional $450 paid to a share brokerage firm.

Required

1. Calculate the goodwill /gain on bargain purchase, show your workings.

2. Prepare the journal entries in the records of Thor Ltd to account for the acquisition of the assets and liabilities of Loki Ltd.                

3. Show in good format the statement of financial position of Thor Ltd after completion of the business combination.                                    

Answer 1

The answer to above question is attached in the below mentioned 3 images