On 1 January 20X0, Zed Ltd acquired 100 % of the share capital of Ned Ltd for $900 000 cash.At that date, the equity section of Ned Ltd's balance sheet was as follows:
$\begin{array}{llcc}
\text { } &\$ \
\text {Share capital } &700000\
\text {Retained profits } &50000\
\text {
Asset revaluation reserve } &100000\
\end{array}$

Assuming all assets and liabilities were recorded at their fair values what was the difference on acquisition?
A)$50 000 goodwill
B)$50 000 bargain purchase
C)$100 000 goodwill
D)$100 000 bargain purchase

Question

On 1 January 20X0, Zed Ltd acquired 100 % of the share capital of Ned Ltd for $900 000 cash.At that date, the equity section of Ned Ltd's balance sheet was as follows:
$\begin{array}{llcc}
  \text {  } &\$  \
 \text {Share capital  } &700000\
 \text {Retained profits  } &50000\
 \text {
Asset revaluation reserve  } &100000\
\end{array}$

Assuming all assets and liabilities were recorded at their fair values what was the difference on acquisition?
A)$50 000 goodwill
B)$50 000 bargain purchase
C)$100 000 goodwill
D)$100 000 bargain purchase

Quizplus · Accepted Answer

The difference on acquisition, often referred to as goodwill, is calculated as the purchase consideration minus the net assets acquired. In this case, the net assets acquired are the sum of share capital ($700,000), retained profits ($50,000), and the asset revaluation reserve ($100,000), totaling $850,000. The purchase consideration is $900,000. Therefore, the difference is $900,000 - $850,000 = $50,000, which represents goodwill.

On 1 January 20X0, Zed Ltd Acquired 100 % of the Share