Emerging Ltd made a takeover bid for all the issued voting shares of Crown Ltd offering 7 Emerging Ltd shares for every 5 Crown Ltd shares (i.e. at 7:5 script offer/share exchange). The offer from Emerging Ltd was accepted by 75% of the shareholders of Crown Ltd. At acquisition date, which was deemed to be 1 January 2017, the following information is available:

 

Crown Ltd at 31 December 2016    $'000 

Share Capital (200,000 shares)      200 

Capital Profits Reserve                     300 

Retained Profits                                 150

 

Total Equity                                       650 

 

Market value of each company's shares at 1 January 2017

 

 Emerging Ltd $4.00 

Crown Ltd $4.50 

 

In Crown Ltd's accounting records, land was stated at $260,000 below its cost to the economic entity (i.e. fair value at acquisition date). This is to be accounted for as a consolidation adjustment. The rate of company income tax is 30%.

 

 Required:

 

 (i) Complete the 'acquisition analysis' on 1 January 2017 for Emerging Ltd's investment in Crown Ltd as required by AASB3 and following the full/fair value goodwill method determine the amount of goodwill or gain on bargain purchase.  

 

(ii) Prepare the acquisition journal entries as required by AASB10 on 1 January 2017 under the method.