Tiger Ltd, a supplier of motor vehicle spare parts, agreed to acquire the business of a rival company, Lion Ltd, taking over all assets and liabilities as at 1 May 2021.

The consideration was payable by the issue of 10 000 shares in Tiger Ltd with a fair value of $1 each and the balance by transfer of the share portfolio held by Tiger Ltd. The share portfolio had a fair value as at 1 May 2021 of $75 000.

The trial balances of the two companies as at 1 May 2021 were as follows.

Tiger Ltd

Lion Ltd

Dr

Cr

Dr

Cr

Share capital

50 000

49 000

Retained earnings

6 000

2 000

Accounts payable

1 500

5 000

Mortgage loan

100 500

Cash

25 000

6 000

Equipment (net)

50 000

45 000

Inventory

8 000

4 000

Share portfolio

70 000

Goodwill

5 000

1 000

158 000

158 000

56 000

56 000

All the identifiable net assets of Lion Ltd were recorded by Lion Ltd at fair value except for the equipment, which were considered to be worth $35 000 (assume no tax effect). The plant had an expected remaining life of 5 years.

The business combination was completed and Lion Ltd went into liquidation. Tiger Ltd incurred incidental costs of $650 in relation to the acquisition. Costs of issuing shares in Tiger Ltd were $300 with an additional $500 paid to a share brokerage firm.

Required

1. Calculate the goodwill /gain on bargain purchase, show your workings.

(3 marks)

1. Prepare the journal entries in the records of Toms Ltd to account for the acquisition of the assets and liabilities of Jerrys Ltd. (14 marks)

1. Show in good format the statement of financial position of Toms Ltd after completion of the business combination.(8 marks)