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Assignment

Acknowledgement This exercise is adapted from Problem 7.1 on Page 294 of the Leo & Hoggett text. Assignment. Honiara Ltd is seeking to expand its market share and has negotiated to take over the operations of Gizo Ltd on 1 January 2005. Honiara Ltd will acquire all assets, except cash.

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Assignment

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  1. Acknowledgement This exercise is adapted from Problem 7.1 on Page 294 of the Leo & Hoggett text Assignment • Honiara Ltd is seeking to expand its market share and has negotiated to take over the operations of Gizo Ltd on 1 January 2005. • Honiara Ltd will acquire all assets, except cash. • The balance sheet of Gizo Ltd at 31 December 2004 is provided on the next page.

  2. The assets of Gizo Ltd are all recorded at fair value except Inventory (Fair Value $39,000) Freehold Land (Fair Value $130,000) Buildings (Fair Value $40,000) Balance Sheet

  3. Additional Information The liquidator of Gizo Ltd reports the following debts were outstanding but not recorded at 31 December 2004. Accounts Payable ($1,600) Mortgage Interest ($4,000) In addition, debentures issued by Gizo Ltd are to be redeemed at a 5% premium. In exchange, Honiara Ltd will provide • sufficient cash to allow Gizo Ltd to repay • All its outstanding debts; • And liquidation costs of $2,400 • plus 2 fully paid shares in Honiara Ltd for every 3 shares held in Gizo Ltd. The fair value of a share in Honiara Ltd is $3.20

  4. Requirements • Prepare the acquisition analysis and journal entries to record the business combination in the books of Honiara Ltd. • Quoting the relevant accounting standard, outline the disclosures that Honiara Ltd is required to make in its financial statements at 31 December 2005. Close

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