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Business Combination On 1 July 2020, Tall Ltd acquired all of the assets and liabilities of...

Business Combination

On 1 July 2020, Tall Ltd acquired all of the assets and liabilities of Blacks Ltd. In exchange for these assets and liabilities, Tall Ltd issued 100 000 shares that at date of issue had a fair value of $6.30 per share. Costs of issuing these shares amounted to $1000. Legal costs associated with the acquisition of Blacks Ltd amounted to $4200.

The asset and liabilities of Blacks Ltd at 1 July 2020 were as follows:

                                                                                               Carrying amount                               Fair value

Assets

             Cash                                                                                              $1 000                                      $1 000

             Accounts receivable                                                               10 000                                      10 000

             Inventory                                                                                    64 000                                      68 000

             Equipment                                                                               320 000                                    232 000

             Accumulated depreciation – equipment                    (96 000)                                              —

             Patents                                                                                      240 000                                    280 000

Liabilities

             Accounts payable                                                                 (16 000)                                   (16 000)

             Debentures                                                                            (64 000)                                   (64 000)

The accountant for Tall Ltd, Mr Spencer, knows that AASB 3 has to be applied in accounting for business combinations. However, he is confused as to how to account for the goodwill, what recognition criteria is applied to assets and liabilities acquired in the business combination, and how the varying dates such as the date of exchange and acquisition date will affect the accounting for the business combination.

Provide Mr Spencer with advice on the issues that are confusing him.

Required

  1. Explain how to account for goodwill.                                                                                         

  1. Discuss the importance of identifying the acquisition date                                                                   

  1. What recognition criteria is applied to assets and liabilities acquired in the businesscombination. Explain.                                                                                                         

  1. Prepare the acquisition analysis at 1 July 2020 for the acquisition of Blacks Ltd by Tall Ltd.                                                                                                                                                                         

  1. Prepare the journal entries in the records of Tall Ltd at 1 July 2020.                             

Solutions

Expert Solution

ekkarill92 answered 2 years ago
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