Question 2

XYZ Ltd acquires 100 per cent of Red-X Ltd on 1 July 2021. XYZ Ltd pays the shareholders of Red-X Ltd the following consideration:

Cash                                                                         85 033

Plant and equipment fair value                             $303 688; 

carrying amount in the books of XYZ Ltd             $206 400

Land fair value                                                          $364 425; 

carrying amount in the books of XYZ Ltd             $242 950

There are also legal fees of $230 803 involved in acquiring Red-X Ltd.

On 1 July 2021, Red-X Ltd’s statement of financial position shows total assets of $364 425 and liabilities of $364 425. The fair value of the assets is $971 800.

Required:

Has any goodwill been acquired, and if so, how much? And discuss the potential for including associated legal fees into the cost of acquiring Red-X using appropriate accounting standards.