Led Ltd Acquired 100% of Zeppelin Ltd on 30 June

question 23

Multiple Choice

Led Ltd acquired 100% of Zeppelin Ltd on 30 June 20X0 by paying $6 million cash and incurring $1 million legal fees.At that date the net assets of Zeppelin Ltd was as follows:
$$\begin{array} { l r r } & \text { Recorded amount } & \text { Fair value } \\\text { Total assets } & \$ 9 \text { million } & \$ 10 \text { million } \\\text { Total liabilities } & \$ 1 \text { million } & \$ 1 \text { million } \\\text { Net assets } & \$ 8 \text { million } & \$ 9 \text { million }\end{array}$$
Total assets comprise buildings of $6 million, equipment of $3 million and accounts receivable of $1 million.All these figures are fair values.What is the recorded amount of buildings in Led group's consolidated financial statements for the year ended 30 June 20X0?

• A)$6 million
• B)$3 million
• C)$2 million
• D)$4.66 million

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Definitions:

Effective Interest Method

An accounting technique used to calculate the amortized cost of a bond or loan and to allocate the interest expense over the borrowing's life.

Sold At A Discount

The sale of an asset or service for a price lower than its nominal or face value.

Classified Balance Sheet

A financial statement that groups a company's assets, liabilities, and equity into categories for detailed analysis.

Stockholders' Equity

Stockholders' Equity is the residual interest in the assets of a corporation after deducting its liabilities, representing the ownership interest of the shareholders.