On 31 December 2015, Ham Ltd (H) purchased 680,000 shares from the existing shareholders of Safe Limited (S). S has a total number of issued shares of 800,000 shares. The purchase consideration was $2,500,000. As at that date, the fair value of non-controlling interest was $450,000 and the fair value of S Ltd’s identifiable net assets was $2,700,000. H Ltd reports non-controlling interest at fair value at acquisition date.
Required:
a. Discuss why goodwill/gain on bargain purchase may arise in a business combination.
b. Explain how the goodwill/gain on bargain purchase arising from the acquisition of S should be accounted for in the consolidated financial statements of H.
c. Determine the amount of goodwill/gain on bargain purchase generated from the acquisition of S in the above transactions assuming:
i. Non-controlling interest is measured at its fair value; and
ii. Non-controlling interest is measured at its net assets value.