Fredericks Limited acquired the identifiable assets and liabilities of Nicole Limited for €134 000. The items acquired, stated at fair value, are:
• Plant €72 000
• Inventory €40 000
• Trade receivables €18 000
• Patents €10 000
• Trade payables €16 000.

The difference on acquisition is:
A) Gain on bargain purchase €10 000
B) Gain on bargain purchase €16 000
C) Goodwill of €10 000
D) Goodwill of €124 000.

Question

Fredericks Limited acquired the identifiable assets and liabilities of Nicole Limited for €134 000. The items acquired, stated at fair value, are: 
•	Plant €72 000
•	Inventory €40 000
•	Trade receivables €18 000
•	Patents €10 000
•	Trade payables €16 000.

The difference on acquisition is:
A) Gain on bargain purchase €10 000
B) Gain on bargain purchase €16 000
C) Goodwill of €10 000
D) Goodwill of €124 000.

Quizplus · Accepted Answer

The total fair value of assets acquired is €140,000 (€72,000 + €40,000 + €18,000 + €10,000) and liabilities are €16,000. The net assets are €124,000 (€140,000 - €16,000). The purchase price is €134,000, so the goodwill is €10,000 (€134,000 - €124,000).

Fredericks Limited Acquired the Identifiable Assets and Liabilities of Nicole