1. a. Goodwill = Purchase consideration - value of assets and liabilities taken over
We know that total assets - total liabilities = shareholders fund (capital +reserves)
Thus, goodwill = purchase consideration - shareholders fund +/- revaluation
Purchase consideration = $ 480,000
Shareholders fund = $ (90,000 + 130,000) = $ 220,000
Revaluation = upward revaluation of land at $ 20,000
(100,000-80,000) + upward revaluation of buildings at $ 180,000
(400,000 - 220,000)
= $ 200,000
Thus, goodwill = 480,000 - 220,000 - 200,000
= $ 60,000
b. Consolidation entry:
Land Dr. $100,000
Buildings Dr. $400,000
Goodwill Dr. $60,000
Cash Cr. $480,000
Liabilities Cr. 80,000 (balancing figure)
(being assets and liabilities taken over at fair values)
Note: we don't have any information about current assets and liabilities, so we assume that land and buildings are the only assets and remaining are liabilities.
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