Rose Ltd Acquired All the Equity of Jeannie Ltd on 1

question 10

Multiple Choice

Rose Ltd acquired all the equity of Jeannie Ltd on 1 July 20X3.At that time the fair value/financial position of Jeannie was as follows:
$$\begin{array} { l r } \text { Capital } & \$ 500000 \\\text { Reserves } & \$ 100000 \\\text { Retained profits } & \$ 150000 \\\text { Liabilities } & \$ 50000\end{array}$$
Suppose that Rose paid $850 000 for the shares in Jeanie, which of the following correctly describes the accounting procedures that will arise as a result of the business combination? Assume that the difference between the fair value of the consideration paid for Jeannie shares and the fair value of the net assets is due to the directors of Rose having overestimated the fair value of Jeannie assets.

• A)The Rose Group will record a goodwill asset of $100 000 on its consolidation worksheet if prepared as at 1 July 20X3
• B)Rose Ltd will record a goodwill asset of $100 000 in its ledger
• C)The Rose Group will record a goodwill impairment expense of $100 000 on its consolidation worksheet if prepared as at 1 July 20X3
• D)None of the above are appropriate

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