ABC issued a prospectus for the issue of 100,000 $5 shares on 1 January 2016.

The prospectus specified that:

$2.50 was payable on application

Further $1.25 was payable on allotment

The final $1.25 was payable at call

On 31 January 2016, ABC received applications for 110 000 shares. ABC issued all of the 100,000 shares on a pro-rate basis and refunded the excess money to the shareholders. All the money owed on allotment was received by 1 March 2016. On 31 May 2016, the company made the call for the outstanding balance of $1.25 per share. The call was payable by 30 June 2016. At 30 June 2016, the call on 10,000 shares remained unpaid.

On 1 July 2016 the directors of ABC decided to forfeit the 10,000 shares in respect of which the call of $1.25 was not made. The shares were cancelled and reissued as fully paid to $5 per share on payment of $4 per share. Costs of $1500 were incurred to reissue the shares. The balance of the forfeited shares account was returned to the shareholder.

Required

Show journal entries to implement the above transactions. (Show all workings and dates but narrations are NOT required)

2. On 1 January 2016 A Ltd acquired all the assets and liabilities of B Ltd. Details of the consideration transferred are as follows:

• Cash of $381,818 to be paid on 1 January 2016
• 100,000 shares in A Ltd were issued. The share price on 1 January 2016 was $1.50 per share. This price represented a six-month high. Costs of issuing the shares was $1,000.
• Supply of a patent to B Ltd. The fair value of the patent is $60,000. As the patent was internally generated it has not been recognised in A Ltd’s books.
• Legal fees and associated costs with the acquisition totalled $5,000.

Details of B Ltd’s assets and liabilities acquired by A Ltd are as follows:

	CA	FV
Plant & equipment	360,000	367,000
Land	260,000	257,000
Inventory	24,000	30,000
Accounts receivable	18,000	16,000
Accounts payable	(35,000)	(35,000)
Bank overdraft	(55,000)	(55,000)
Net assets	572,000	580,000

In addition, B Ltd is currently being sued by a previous customer. The fair value of the expected damages is $10,000.

Required:

1. Analyses the situation and calculate the goodwill or bargain from the purchase transaction

2. Prepare the necessary journal entries for business combination on the acquisition date using the direct method