Answered: Range Ltd acquired a business for the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Range Ltd acquired a business for the following consideration:

Cash $50 000
Land—Carrying amount $90 000

Fair value $150 000

Shares in Range Ltd—Fair value $60 000

(Hint: it is the fair value of the consideration that is relevant)

The business being acquired had the following assets and liabilities as reported in the balance sheet (there were no contingent liabilities):

Liabilities

Bank loan $50 000
Creditors $30 000

Assets

Plant and equipment $150 000
Motor vehicle $30 000
(the plant and equipment and motor vehicle have fair value of $170 000 and $30 000, respectively)

HOW MUCH GOODWILL WAS ACQUIRED?

Definition Definition Costs that a business is responsible for paying, should a particular event potentially occur in the future. Also called a potential liability, a contingent liability is generally recorded only when the amount of liability can be reasonably estimated and the contingency is likely to occur shortly. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Principles (IFRS) make it mandatory for the companies to record any contingent liability taking the principles of full disclosure, materiality, and prudence into consideration.

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