Reference no: EM132525960
Howard Ltd is seeking to expand its share of the widgets market and has negotiated to take over the operations of Falcon Ltd on 1 January 2021. The statements of financial position of the two companies as at 31 December 2020 were as follows.
Howard Ltd ($) Falcon Ltd ($)
Cash 22,900 11,510
Accounts receivable 26,650 34,899
Inventories 36,570 25,828
Freehold land 136,800 92,000
Buildings (net) 65,630 28,230
Plant and equipment (net) 69,550 43,620
Goodwill 26,460 1,800
$384,560 $237,887
Accounts payable 59,830 45,755
Mortgage loan 47,300 43,370
Debentures 108,600 50,050
Share capital - 99,200 shares 99,200 - - 61,530 shares - 61,530
Other reserves 26,860 27,481
Retained earnings 42,770 9,701
$384,560 $237,887
Howard Ltd is to acquire all the identifiable assets, except cash, of Falcon Ltd. The assets of Falcon Ltd are all recorded at fair value except:
Fair value ($)
Inventories 38,159
Freehold land 122,300
Buildings 37,280
In exchange, Howard Ltd is to provide sufficient extra cash to allow Falcon Ltd to repay all of its outstanding debts and its liquidation costs of $2,579, plus two fully paid shares in Howard Ltd for every three shares held in Falcon Ltd. The fair value of a share in Howard Ltd is $3.
Costs of issuing the shares were $1,165.
Question 1: Prepare the acquisition analysis to record the business combination in the records of Howard Ltd.
- Net fair value of assets and liabilities acquired $
- Consideration transferred $
- Gain on bargain purchase/ Goodwill $