Larrikin Ltd is seeking to expand its share of the Australian made products market and has negotiated to acquire the shares of Dinkum Ltd and the operations of Ooroo Ltd.

At 1 July 2022, the trial balances of the three companies were as follows.

	Larrikin Ltd		Ooroo Ltd		Dinkum Ltd
	$		$		$
Cash	160,000		5,200		84,000
Accounts receivable	42,000		21,300		52,000
Inventories	76,000		30,000		25,400
Shares in listed companies	16,000		22,000		7,000
Land and buildings (net)	250,000		155,000		36,000
Plant and equipment (net)	160,000		105,000		25,000
Goodwill (net)	6,000		5,000		5,600
	710,000		343,500		235,000
Accrued Liabilities	65,000		40,000		69,000
Debentures	70,000		-		100,000
Mortgage loan	140,000		130,000		-
Share capital
ordinary shares of $1, fully paid	338,000		165,000		60,000
Other reserves	20,000		6,500		4,000
Retained earnings (30/6/22)	77,000		2,000		2,000
Total liabilities and equity	710,000		343,500		235,000

Dinkum Ltd

Larrikin Ltd is to acquire all the issued shares of Dinkum Ltd. In exchange, the shareholders of Dinkum Ltd are to receive:

• one Larrikin Ltd share, worth $2.75 for each 2 shares currently held in Dinkum Ltd.
• $1.60 cash for every two Dinkum Ltd shares held.

Ooroo Ltd

Larrikin Ltd is to acquire all assets (except cash and shares in listed companies) of Ooroo Ltd. Acquisition-related costs are expected to be $8,900. The net assets of Ooroo Ltd are recorded at fair value except for the following.

	Carrying Amount $	Fair Value $
Inventories	30,000	21,000
Land and Buildings	155,000	200,000
Shares in listed companies	22,000	18,000
Accrued Liabilities	-40,000	-52,000
Long service leave accrued	0	-31,300

In exchange, the shareholders of Ooroo Ltd are to receive, for every three Ooroo Ltd shares held, one Larrikin Ltd share worth $2.75 each. Costs to issue these shares are $950. Additionally, Larrikin Ltd will transfer to Ooroo Ltd its Shares in Listed Companies asset, which has a fair value of $19,000. These shares, together with those already owned by Ooroo Ltd will be sold and the proceeds distributed to the Oofoo Ltd shareholders. Assume that the shares were sold for their fair values.

Larrikin Ltd will also give Ooroo Ltd sufficient additional cash to enable Ooroo Ltd to pay all its creditors. Ooroo Ltd will then liquidate. Liquidation costs are estimated to be $8,700.

Required:

1. Prepare the acquisition analysis and journal entries to record the acquisitions in the records of Larrikin Ltd. (12 marks)

2. Shortly after the business combination, the liquidator of Ooroo Ltd receives a valid claim of $25,000 from a creditor. As Larrikin Ltd has agreed to provide sufficient cash to pay all the liabilities of Ooroo Ltd at acquisition date, the liquidator requests and receives a cheque for $25,000 from Larrikin Ltd. How should Larrikin Ltd record this payment? Why? (2 marks)

3. Why does Larrikin Ltd not determine a fair value for the goodwill asset and record that figure as it has done for other assets acquired from Ooroo Ltd? (1 mark)