Coolum Ltd Acquired a Business from Mudjumba Ltd on 1

question 3

Multiple Choice

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.

• A)goodwill of $100 000
• B)gain on bargain purchase of $100 000
• C)gain on bargain purchase of $30 000
• D)goodwill of $30 000

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Definitions:

Net Assets

Net assets represent the total assets of a company minus its total liabilities, indicating the actual value of a company’s equity held by shareholders.

Acquisition

The process by which one company takes over another company either by purchasing its assets or its stock.

Goodwill

An intangible asset representing the excess of acquisition cost over the fair value of identifiable net assets acquired in a business combination.

Acquiring Company

A company that purchases most or all of another company's shares to gain control of that company.