Has any goodwill been acquired, and, if so, how much?

Question 1: ABC Ltd has the following land and buildings in its financial statements as at 30 June 2022:

At 30 June 2022, the balance of the revaluation surplus is $904 000, of which $678 000 relates to the factory land and $226 000 to the buildings. On this same date, independent valuations of the land and buildings are obtained. In relation to the above assets, the assessed fair values at 30 June 2022 are:

Required:
Provide the journal entries to account for the revaluation on 30 June 2022. ABC Ltd classifies the residential land and the factory land as different classes of assets.

ANSWER 1:

ANSWER 2:

Journal Entries

Sr no                    Particulars                                Debit ($ in Lakhs)                                 Credit ($ in Lakhs)

1                       Residential land                              2

                        Revaluation surplus                                                 2

                       (To Record revaluation surplus)

2                      Revaluation surplus                            4

                       Factory Land                                                         4

                      (To record revaluation surplus)                                                                   

3                     Building A/c                                   2

                      Accumulated Depreciation                       2

                      Revaluation surplus                                                    4

                      (To record revaluation surplus)

Computation of Revaluation Surplus

Residential building= $2200000.000000-$2000000.0000000= $2000000.0000000

Factory Land = $1400000.00000-$1800000.000000= -$400000.000000

Building = $1800000.00000000 - $1400000.000000 = $400000.00000000

Question 2: XYZ Ltd acquires 100 per cent of Red-X Ltd on 1 July 2021. XYZ Ltd pays the shareholders of Red-X Ltd the following consideration:

There are also legal fees of $214 700 involved in acquiring Red-X Ltd.
On 1 July 2021, Red-X Ltd's statement of financial position shows total assets of $339 000 and liabilities of $339 000. The fair value of the assets is $904 000.

Required:
Has any goodwill been acquired, and, if so, how much? And discuss the potential for including associated legal fees into the cost of acquiring Red-X using appropriate accounting standards.

ANSWER 1:
Calculation of purchase consideration paid

Calculation of net assets of the entity

Calculation of goodwill

In this scenario the cost incurred as the legal expense while acquiring the other entity are not clubbed in the calculation of the total purchase consideration paid (Gao, et al. 2019). It isconsidered as an acquisition expense and should be written off to the profit and loss account according to the AASB 3 Paragraph 53.

ANSWER 2:

Given:

Cash=                                                                                                  $70000.0000

Fair Value of Plant and Machinery =                                                 $250000.0000

Fair value of Land = $300000.0000

Legal Fees=                                                                                       $190000.0000

Purchase consideration= $$70000.0000000+$250000.00000000+$190000.0000000+ $$300000.0000000=$810000.0000000

Net Asset Value of Red- X=  $800000.0000000-$300000.000000= $500000.0000

Goodwill =$810000.0000000-$500000.000000= $310000.000000

Legal expenses are referred to as those expenses which are basically incurred by entities to transfer the ownership of asset from one person or company to another. Hence, it is generally included in the total cost of acquiring the asset. In the above described scenario as well, legal cost are included in the total expense of acquisition

Related:

Discuss the potential for the cost of acquiring Red-X

Initial measurement of the lease liability

Explain the hedging arrangement

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