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Business Combinations Quiz Questions

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Business Combinations Quiz Questions
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  ACCT2006 CORPORATE ACCOUNTINGBUSINESS COMBINATIONSQUIZ QUESTIONS and SOLUTIONS 1.On 1 December 2013, Grapefruit Ltd took over the operation of Lime Ltd. At thatdate the assets and liabilities of Lime Ltd ere!"arr#in$ Amount%air &alue"ash20 00020 000'eceivables(0 0003) 000*nventor#2+ 000(2 000ropert#, lant and -uipment13/ 0001/+ 000Accounts a#able3+ 0003 000-mplo#ee -ntitlements(1 000( 000Grapefruit Ltd acuired all of the assets e4cept cash plus an unrecorded trademark oned b# Lime Ltd hich Grapefruit Ltd estimated to be orth 530 000 atacuisition date. *n e4chan$e for these assets Grapefruit $ave the shareholders of Lime Ltd /2 000 Grapefruit Ltd shares each orth 52.)0, and sufficient additionalcash to pa# all outstandin$ liabilities includin$ liuidation costs of 5 000.Acuisition related costs amounted to 51/ 000.'euired"alculate the fair value of the net identifiable assets acuired b# Grapefruit Ltd,sho all orkin$s. 2 marks 2.6o and hen is $oodill measured7 2 8arks3.6o are directl# attributable acuisition related costs accounted for7 9h#71 8ark(.On 1 April 2013, Lemon Ltd acuired all of the issued shares of Oran$e Ltd. Atthis date, the share capital of Oran$e Ltd consisted of +0 000 ordinar# sharesissued at 52.0 each. :nder the terms of the acuisition Lemon Ltd is to $iveeach shareholder of Oran$e Ltd for each five / Oran$e Ltd shares held to 2Lemon Ltd shares and 51./0 cash . ;he fair value of a Lemon Ltd share is 53.3/.*t ill cost Lemon Ltd 5 +/0 to issue the ne shares. 'euiredrepare the <ournal entries to record the acuisition. 2 8arks/.List to indicators hich can assist in assessin$ hich entit# is the acuirer in a business combination. 2 8arks  .Define control. 1 8ark+.On 1 =ul# 2013 "umuat Ltd acuired the operatin$ division of 8andarin Ltd. Atthat date the assets and liabilities of the operatin$ division ere!5'eceivables 2/ 000*nventor# 1+ 000Land10 000lant and -uipment net )2 000Accounts a#able 3 /00Loan a#able(0 000All items are recorded at fair value ith the e4ception of inventor# 523 000,land 51)0 000 and loan pa#able 5(3 000. *n e4chan$e, "umuat Ltd $ave8andarin Ltd /0 000 "umuat Ltd shares ith a fair value of 52./0 each, a portfolio of listed shares fair value 5/1 000> carr#in$ value 5(0 000 and 5/ 000cash. "osts of issuin$ the ne shares ere 500.'euiredrepare the acuisition anal#sis. 3 8arks).?ame to t#pes of business combination hich are not covered b# the provisionsof AA@ 3. 2 8arks.9h# is the concept of control essential to accountin$ for business combinations71 8ark10.On 1 April 2013, Lemon Ltd acuired all of the issued shares of Oran$e Ltd. Atthis date, the share capital of Oran$e Ltd consisted of +0 000 ordinar# sharesissued at 52.0 each. :nder the terms of the acuisition Lemon Ltd is to $iveeach shareholder of Oran$e Ltd for each five / Oran$e Ltd shares held to 2Lemon Ltd shares and 51./0 cash. ;he fair value of a Lemon Ltd share is 53.3/.*t ill cost Lemon Ltd 5 +/0 to issue the ne shares. 'euired"alculate the cost of the business combination, sho all orkin$s. 2 8arks11.9hat steps should an accountant take immediatel# after calculatin$ that a $ain on bar$ain purchase has arisen from a business combination transaction7 2 8arks12.9hat is the ke# difference beteen identifiable assets and $oodill7 1 8ark  13.On 1 =ul# 2013 "umuat Ltd acuired the operatin$ division of 8andarin Ltd. Atthat date the assets and liabilities of the operatin$ division ere!5'eceivables 2/ 000*nventor# 1+ 000Land10 000lant and -uipment net )2 000Accounts a#able 3 /00Loan a#able(0 000All items are recorded at fair value ith the e4ception of inventor# 523 000,land 51)0 000 and loan pa#able 5(3 000. *n e4chan$e, "umuat Ltd $ave8andarin Ltd /0 000 "umuat Ltd shares ith a fair value of 52./0 each, a portfolio of listed shares fair value 5/1 000> carr#in$ value 5(0 000 and 5/ 000cash. "osts of issuin$ the ne shares ere 500.'euiredrepare the <ournal entries to record the above acuisition. / marks1(.9hat is a $ain on bar$ain purchase and ho is it accounted for7 1 8ark1/.On 1 =anuar# 2013 8an$o Ltd took over the operations of L#chee Ltd andrecorded acuired $oodill orth 51/ 000. On 13 %ebruar# 2013 the accountantas advised that the fair value determined for land acuired under that acuisitionas flaed and had understated the value of the land b# 52/ 000. 9hat action, if an#, should the accountant take7 @ho an# necessar# <ournal entries. 2 8arks1.*n accountin$ for a business combination assets and liabilities acuired and assetsand euit# $iven up are measured at fair value on acuisition date. Does thismean that $oodill is also measured at fair value on that date7 1 8ark1+.%red 9alker the accountant for ;amarind Ltd is attemptin$ to record thecompan#Bs recent acuisition of aa Ltd. 6oever, he is unable todetermine if the acuisition date is 1 ?ovember 2013 or 1( ?ovember 2013. ;hemana$in$ director has su$$ested that %red simpl# chooses one date as Cthe# are soclose it ill not matterB. *s the mana$in$ director correct7 2 8arks  1).On 1 December 2013, Grapefruit Ltd took over the operation of Lime Ltd. At thatdate the assets and liabilities of Lime Ltd ere!"arr#in$ Amount%air &alue"ash20 00020 000'eceivables(0 0003) 000*nventor#2+ 000(2 000ropert#, lant and -uipment13/ 0001/+ 000Accounts a#able3+ 0003 000-mplo#ee -ntitlements(1 000( 000Grapefruit Ltd acuired all of the assets e4cept cash plus an unrecorded trademark oned b# Lime Ltd hich Grapefruit Ltd estimated to be orth 530 000 atacuisition date. *n e4chan$e for these assets Grapefruit $ave the shareholders of Lime Ltd /2 000 Grapefruit Ltd shares each orth 52.)0, and sufficient additionalcash to pa# all outstandin$ liabilities includin$ liuidation costs of 5 000.Acuisition related costs amounted to 51/ 000.'euired"alculate the cost of the business combination, sho all orkin$s. 2 marks 1.9hat is $oodill7 1 8ark20.On 1 December 2013, Grapefruit Ltd took over the operation of Lime Ltd. At thatdate the assets and liabilities of Lime Ltd ere!"arr#in$ Amount%air &alue"ash20 00020 000'eceivables(0 0003) 000*nventor#2+ 000(2 000ropert#, lant and -uipment13/ 0001/+ 000Accounts a#able3+ 0003 000-mplo#ee -ntitlements(1 000( 000Grapefruit Ltd acuired all of the assets e4cept cash plus an unrecorded trademark oned b# Lime Ltd hich Grapefruit Ltd estimated to be orth 530 000 atacuisition date. *n e4chan$e for these assets Grapefruit $ave the shareholders of Lime Ltd /2 000 Grapefruit Ltd shares each orth 52.)0, and sufficient additionalcash to pa# all outstandin$ liabilities includin$ liuidation costs of 5 000.Acuisition related costs amounted to 51/ 000.'euiredDetermine if the business combination resulted in a $oodill asset bein$ acuiredor a $ain on bar$ain purchase bein$ earned. 2 8arks
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