Question

a) Explain the ways in which a company may expand by obtaining new assets. (1 mark) (b) Jamuna River Ltd purchased a parcel of assets and liabilities comprising a business directly from Lyneham Pty Ltd. The parcel of assets, measured at net fair value, consisted of: Balance of Accounts: Plant Land Vehicles Accounts receivable Accounts payable Total ($)___ 150,000 240,000 120,000 30,000 (48,000) 492,000 2 Question 3 (Cont’d) Required: Prepare journal entries to record the acquisition by Jamuna River Ltd, assuming that: (i) The cost of acquisition was $600,000 cash. (ii) The cost of acquisition was $432,000 cash.

Answer 1

Case 1 - When Purchase consideration is $ 600,000

Note - Difference between purchase consideration paid and net asset aquired is treated as Goodwill , because PC is $600,000 and Net asset aquired is $492,000. That is why we considered difference is amount paid for goodwill.

Case 2 - When Purchase consideration is $ 480,000

Note - Difference between purchase consideration paid and net asset aquired is treated as capital reserve , because PC is $480,000 and Net asset aquired is $492,000. That is why we considered difference capital reserve.

Addittionally before measuring amount of bargain purchase, we need to reassure because nobody will ready to take $12,000 less for their asset.