HI6025 Accounting Theory And Current Issues - Final Assessment

Question 2 (7 marks)

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:

There are also legal fees of $190 000 involved in acquiring Red-X Ltd.

On 1 July 2021 Red-X Ltd’s statement of financial position shows total assets of $300 000 and liabilities of $300 000. The fair value of the assets is $800 000.

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 standard.