In a move to expand its share of the market in surgical equipment, Medical Ltd acquired the operations of Bio Ltd on 1 July 2022.

On 1 July 2022, the Statement of Financial Position and fair values of net assets for Bio Ltd were as follows:

	$	Fair Values $
Cash	35,000
Accounts receivable (net)	58,000	55,000
Inventory	70,000	65,000
Land and buildings (net)	215,000	240,000
Plant and equipment (net)	192,000	180,000
Patent	40,000	60,000
Total assets	$610,000
Accounts payable	75,000	75,000
Mortgage loan	100,000	100,000
Debentures 5%	20,000	20,000
Share capital ($2 ordinary shares fully paid)	360,000
Retained earnings	55,000
Total liabilities & equity	$610,000

Fair values obtained for net assets were through active markets, except for the patent. Medical Ltd required an independent assessment to calculate the fair value for the patent.

On the date of acquisition, Medical Ltd acquired all the assets (not including cash) and assumed the accounts payable of Bio Ltd. Bio Ltd went into liquidation after the acquisition.

In exchange, Medical Ltd gave the shareholders of Bio Ltd two Medical Ltd shares for every three Bio Ltd shares they held. Medical Ltd shares were valued at $3 each on acquisition date. Costs incurred by Medical Ltd to issue the shares were $2,000.

Additionally, Medical Ltd transferred to Bio Ltd land with a fair value of $90,000 (recorded at $75,000 in Medical Ltd accounts).

Medical Ltd also gave Bio Ltd sufficient additional cash to enable Bio Ltd to pay all its outstanding liabilities, including interest owing on the debentures, amounts owing to employees of $40,000 and liquidation costs of $3,000.

Required:

a) Prepare an acquisition analysis for the business combination. (12 marks)

b) Prepare the necessary journal entries for Medical Ltd on acquisition date. (7 marks)

c) Discuss the following measurements required for the patent acquired by Medical Ltd in the business combination:

• Initial measurement
• Subsequent measurements

Your answer must refer to the relevant accounting standards that apply.