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1. In the question leigh. Purchase PPE. In solutions it states that assuming the estimate of future share price was correct at $3.50, the liability at that date will be $3.5 x 1.3 = $4.55.
Why do we need to make adjustment must to dr expense 0.65 and cr liability. 4.55-3.9 = 0.65.2.Investment in hardy
Same question leigh 06/2007. Don’t understand why there is negative goodwill. ?3. What is intrinsic value?
Thank you
Karen, I now have a P2 revision kit but it doesn’t have the question Leigh in it.
I’ve looked on the ACCA website and the past exams listed commence with December 2007.
I’m sorry to say that I can’t help you
With reference to “intrinsic value” the simplest way for me to explain it without a lot of one-finger typing is to suggest that you google intrinsic value and read the definition in the “investopedia” thread (short)
Essentially, it’s the difference between exercise price and current market value
Right Karen …… Limited success!
Negative goodwill in Hardy
Cost of acquisition is 1 million shares at the fair value given in the question $2.50 = $2.5m and we own 30%
We are told that net assets are $9
So, on the acquisition of a 30% holding in Hardy we acquired entitlement to 30% of $9 = $2.7m
$2.7m deducted from $2.5m = $0.2m negative
We could have arrived at that by pretending that the remaining shares are held by a “virtual” non-controlling interest of 70%(!)
So, our cost of $2.5m + the virtual nci share of fair valued net assets (70% x $9m) = 2.5 + 6.3 = 8.8.
Deduct from that the 9m fair valued assets and we’re back again at negative goodwill of $0.2m
Ok for Hardy?
Now for the first part of your post. I’ve read it again. And again. And again! And I can’t see what it is that you are asking. I think you have made a mistake in your typing / picking up information from the question / answer
Do you want to check it and let me know?
Your back Mike 🙂
Thanks for the answer it explains it.
for the 1st part of question I have checked it but don’t seem to have a typing error.
Never Mind. Thanks again.
Hi, I’ve had another read of your post on Leigh
Is the .65 because we already have recorded a liability of $3.9 but with the share price increase to $3.5, the liability needs to be remeasured by the increase of 50 cents per share giving a calculation of 1.3m x $.50 = $0.65 to increase the liability and expenses.
This is tricky because again I don’t have the question but I seem to remember that that would explain the $0.65 increase
at 31 May 20X7, one of the directors recently appointed to the board has been granted the right
to choose either 50,000 shares of Leigh or receive a cash payment equal to the current value of 40,000
shares at the settlement date. This right has been granted because of the performance of the director during the year and is unconditional at 31 May 20X7. The settlement date is 1 July 20X8 and the company
estimates the fair value of the share alternative is $2.50 per share at 31 May 20X7. The share price of Leigh
at 31 May 20X7 is $3 per share. and if the director chooses the share alternative. they must be kept for a
period of four years.
I do not understand how to get the liability component and equity component
i was ok with the entries but when i compare it with the preceding para regarding ppe( which KERRI had asked in previous post), only cash alternative is taken i.e 1.3 *3=3.9 and just deducted it from PPE 4m per the question and thus equity is 0.1why are we not taking share alternative?
whereas for director remuneration we have taken into account both alternatives .it is similar to IAS 32 where liability of 3.9 is taken into consideration and the remaining will be equity 0.1 as equity cannot be measured.
ok i was confused with if they are taking 50,000*2.5=125,000 as total value of right out of which 120,000 is liabilty and rest equity
so basically i am asking about that 125,000Does Kerri’s answer do it for you? I hope so because I’m now about to start my journey home and I would rather not be answering questions whilst sitting in Munich airport!
sir due to negative goodwill, we have added back while calculating the cv of associate but if it was positive then should we have deducted it.
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