Accounting for Business combination The accountant for Aeon Metals Ltd, Mr Harry Benedict, knows that AASB 3 has to be applied in accounting for business combinations. However, he is confused as to how to account for the gain on bargain purchase, what recognition criteria is applied to assets and liabilities acquired in the business combination, and how the varying dates such as the date of exchange and acquisition date will affect the accounting for the business combination. On 1 July 2020, Aeon Metals Ltd acquired all of the assets and liabilities of Gum Ltd. In exchange for these assets and liabilities, Aeon Metals Ltd issued 120 000 shares that at date of issue had a fair value of $4.10 per share. Costs of issuing these shares amounted to $3000. Legal costs associated with the acquisition of Gum Ltd amounted to $6200. The asset and liabilities of Gum Ltd at 1 July 2020 were as follows: Carrying amount Fair value Assets Cash $1 000 11 000 65 000 $1 000 9 000 Accounts receivable 69 000 231 000 Inventory Equipment Accumulated depreciation - equipment Patents Liabilities Accounts payable Debentures 320 000 (96 000) 260 000 282 000 (17000) (65 000) (17 000) (65 000) Provide Mr Harry with advice on the issues that are confusing him. Required 1. Explain how to account for gain on bargain purchase. (4 Marks) 2. Discuss the importance of identifying the acquisition date (3 Marks) 3. What recognition criteria is applied to assets and liabilities acquired in the business combination. Explain. (3 Marks) 4. Prepare the acquisition analysis at 1 July 2020 for the acquisition of Gum Ltd by Aeon Metals Ltd. (5 Marks) 5. Prepare the journal entries in the records of Aeon Metals Ltd at 1 July 2020. (10 Marks)