Coolum Ltd acquired a business from Mudjumba Ltd on 1 July 2011 for a purchase consideration of $500 000 cash.At this date,the identifiable assets of Mudjimba Ltd had a fair value of $600 000 and the liabilities had a fair value of $70 000.Identify whether Collum Ltd should recognise goodwill or a gain on bargain purchase and the correct amount.

Question

Quizplus · Accepted Answer

To determine whether to recognize goodwill or a gain on bargain purchase, we need to compare the purchase consideration with the fair value of the identifiable assets and liabilities. In this case, the fair value of the identifiable assets is $600,000 and the fair value of the liabilities is $70,000, which gives us a net identifiable asset value of $530,000. Since the purchase consideration of $500,000 is less than the net identifiable asset value of $530,000, this represents a gain on bargain purchase. The gain on bargain purchase is calculated as the difference between the purchase consideration and the net identifiable asset value, which is $30,000 in this case. Therefore, the correct answer is option C - gain on bargain purchase of $30,000.

Coolum Ltd Acquired a Business from Mudjumba Ltd on 1