Panda Ltd acquires all the issued capital of Bear Ltd for a cash payment of $2 545 000 on 30 June 2015.The statement of financial position of Bear Ltd at purchase date is: $~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(\$ 000)\
\begin{array}{|l|r|}
\hline \text { Assets } & \
\hline \text { Cash } & 85 \
\hline \text { Accounts receivable } & 185 \
\hline \text { Equipment } & 990 \
\hline \text { Land } & \underline{1285} \
\hline \text { Total assets } &\underline{ 2545} \
\hline & \
\hline \text { Liabilities } & \
\hline \text { Accounts payable } & 45 \
\hline \text { Loans } & \underline{500} \
\hline \text { Total liabilities } & \underline{545} \
\hline & \
\hline \text { Shareholders' equity } & \
\hline \text { Share capital } & 1500 \
\hline \text { Retained earnings } & \underline{500} \
\hline \text { Total liabilities and shareholders' funds } &\underline{2545} \
\hline
\end{array}$ Assuming the assets are at fair value,what amount of goodwill would be recorded in the books of Bear Ltd and what amount would be recorded in the consolidated statements at the date of purchase?

Question

Panda Ltd acquires all the issued capital of Bear Ltd for a cash payment of $2 545 000 on 30 June 2015.The statement of financial position of Bear Ltd at purchase date is: $~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(\$ 000)\
\begin{array}{|l|r|}
\hline \text { Assets } & \
\hline \text { Cash } & 85 \
\hline \text { Accounts receivable } & 185 \
\hline \text { Equipment } & 990 \
\hline \text { Land } & \underline{1285} \
\hline \text { Total assets } &\underline{ 2545} \
\hline & \
\hline \text { Liabilities } & \
\hline \text { Accounts payable } & 45 \
\hline \text { Loans } & \underline{500} \
\hline \text { Total liabilities } & \underline{545} \
\hline & \
\hline \text { Shareholders' equity } & \
\hline \text { Share capital } & 1500 \
\hline \text { Retained earnings } & \underline{500} \
\hline \text { Total liabilities and shareholders' funds } &\underline{2545}  \
\hline
\end{array}$  Assuming the assets are at fair value,what amount of goodwill would be recorded in the books of Bear Ltd and what amount would be recorded in the consolidated statements at the date of purchase?

Quizplus · Accepted Answer

Goodwill is calculated as the excess of the purchase price over the fair value of net assets acquired. The fair value of net assets is $2,000,000 ($2,545,000 total assets - $545,000 total liabilities). The purchase price is $2,545,000, so the goodwill is $545,000 ($2,545,000 - $2,000,000). Goodwill is not recorded in Bear's books, only in the consolidated statements.

Panda Ltd Acquires All the Issued Capital of Bear Ltd