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Alice Ltd acquired all the assets, except cash , and assumed all the liabilities of Medicure Ltd on 1 July 2020. Alice Ltd agreed to

Alice Ltd acquired all the assets,except cash, and assumed all the liabilities of Medicure Ltd on 1 July 2020.

Alice Ltd agreed to provide the following consideration on 1 July 2020:

(1)Cash payment of $100,000, half of which is paid on the acquisition date, the remaining half of which is to be paid one year after the acquisition on 1 July 2021.

(2) Issue 20,000 shares in Alice Ltd to the owners of Medicure Ltd. Alice Ltd's shares were trading at $19.87 per share on 1 July 2020. The cost of the share issue was $7,948.

(3) In the event that Alice Ltd's share price falls below $15.00 per share by 1 August 2020, Alice Ltd would provide additional cash payment of $4.87 per share for the 20,000 issued shares. There is a 30% chance for the share price of Alice Ltd to fall below $15.00 by 1 August 2020.

(4) Alice also provides an existing patent to Medicure Ltd. The patent is not recognised in Alice Ltd's balance sheet but is estimated to have a fair value of $27,800 on the acquisition date.

Alice Ltd incurred $31,740 accounting and legal fees in relation to its acquisition of Medicure Ltd. Alice Ltd's marginal cost of capital is 12% per annum. The corporate tax rate is 30%.

On 1 July 2020, the financial position of Medicure Ltd was as follows:

Carrying amountFair value

Assets

Cash$15,000

Accounts receivable195,000105,000

Land135,000210,000

Equipment (net of depreciation)60,00045,000

Buildings (net of depreciation)135,000240,000

Vehicles (net of depreciation)120,000127,500

Other Investments90,00060,000

Other Non-Current Assets300,000270,000

Total assets$1,050,000

Equity

Share capital - 10,000 shares375,000

Retained earnings180,000

Total equity555,000

Liabilities

Accounts payable75,00075,000

Loans60,00060,000

Debentures360,000360,000

Total liabilities495,000

Total equity and liabilities$1,050,000

Through the due diligence process, it is discovered that Medicure Ltd has provided warranties to customers which, if claimed, would cost Medicure Ltd $100,000. Based on historical data, it was estimated that there was a 50% chance that the warranties would be claimed. In addition, Medicure Ltd had an internally developed trademark which is not recorded in its balance sheet but has a fair value of $16,500.

Required:

Part (A): Complete the acquisition analysis in relation to this business combination and calculate the goodwill or gain on bargain purchase (7 marks).

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