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Question - On 1 July 2020, Silver Ltd acquired all of the assets and liabilities of Fern Ltd. In exchange for these assets and liabilities, Silver Ltd issued 120 000 shares that at date of issue had a fair value of $4.50 per share. Costs of issuing these shares amounted to $2350. Legal costs associated with the acquisition of Fern Ltd amounted to $5200.
The asset and liabilities of Fern Ltd at 1 July 2020 were as follows:
Carrying amount
Fair value
Assets
Cash
$5,000
Accounts receivable
10,000
9,000
Inventory
64,000
60,000
Equipment
320,000
230,000
Accumulated depreciation - equipment
(96,000)
-
Patents
240,000
260,000
Liabilities
Accounts payable
(18,000)
Debentures
(54,000)
The accountant, Ms Ball, has shown the Board of Directors of Silver Ltd the financial information regarding the acquisition. Ms Ball calculated a residual amount of $48 000 to be reported as goodwill in the accounts. The directors are not sure whether they want to record goodwill on Silver Ltd's statement of financial position. Some directors are not sure what goodwill is or why the company has bought it. Other directors even query whether goodwill is an asset, with some being concerned with future effects on the statement of profit or loss and other comprehensive income.
Required -
1. Prepare the acquisition analysis at 1 July 2020 for the acquisition of Fern Ltd by Silver Ltd.
2. Prepare the journal entries in the records of Silver Ltd at 1 July 2020.
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