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 Ltds 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 Ltds 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 Ltds 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 Ltds 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 amount Fair value

Assets

Cash $15,000

Accounts receivable 195,000 105,000

Land 135,000 210,000

Equipment (net of depreciation) 60,000 45,000

Buildings (net of depreciation) 135,000 240,000

Vehicles (net of depreciation) 120,000 127,500

Other Investments 90,000 60,000

Other Non-Current Assets 300,000 270,000

Total assets $1,050,000

Equity

Share capital 10,000 shares 375,000

Retained earnings 180,000

Total equity 555,000

Liabilities

Accounts payable 75,000 75,000

Loans 60,000 60,000

Debentures 360,000 360,000

Total liabilities 495,000

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).

Part (B): Prepare the journal entries in the records of Alice Ltd in relation to its acquisition of Medicure Ltd on 1 July 2020 in accordance with AASB 3 (11 marks).