Asked by Jusseth Hernandez on May 26, 2024
Verified
Rose Ltd acquired on a cum div. basis all of shares in Petal Ltd for $140 000. At the date of acquisition, Trout Ltd had recorded a dividend payable of $40 000 and a total shareholders' equity of $110 000. Assuming all the identifiable assets in Petal Ltd were recorded at fair value at acquisition date, the consolidation worksheet entries will have to recognise:
A) a goodwill of $140 000.
B) a goodwill of $40 000.
C) a goodwill of $10 000.
D) a gain on bargain purchase of $10 000.
Goodwill
An intangible asset that arises when a company acquires another company for a price higher than the fair value of its net assets, representing the value of the brand, customer relationships, and other intangible aspects.
Dividend Payable
A liability recognized on a company's balance sheet when it declares dividends to be paid to shareholders.
- Comprehend the principle and significance of fair value within the context of business mergers and its influence on financial reporting.
- Recognize and compute goodwill or profit from bargain acquisitions in corporate consolidations.
- Understand the effects of dividends on the merger and integration of businesses.
Verified Answer
KN
karthika naiduJun 02, 2024
Final Answer :
D
Explanation :
Since the acquisition was made on a cum div. basis, Rose Ltd would not have recorded the dividend payable of $40 000. Therefore, the net assets acquired would only be $110 000. However, Rose Ltd acquired Petal Ltd for $140 000, resulting in a gain on bargain purchase of $10 000 (i.e. $140,000 - $110,000). Hence, the consolidation worksheet entries will recognise a gain on bargain purchase of $10,000, rather than a goodwill.
Learning Objectives
- Comprehend the principle and significance of fair value within the context of business mergers and its influence on financial reporting.
- Recognize and compute goodwill or profit from bargain acquisitions in corporate consolidations.
- Understand the effects of dividends on the merger and integration of businesses.
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