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Hi
I’m trying to work out the Example 1 of the course notes, Ausra and Danute but I can’t seem to work out how they came across some of the figures in the solution.
In W1, I don’t know how they got the split 5:7 or even how they got the profit on TNCA transfer.
In W2: Goodwill, the solution that was given for cost of acquisition was:
Share capital 75% x 40000 x 2/3 x 1 x $4.30
Deferred cash payment 75% x 40000 x 2/2 x $1.21 x 1/1.10 x 1/1.10
Cash payment 75% x 40000 x 2 x $0.60
Value of net investment 25% x 40000 x 2 x $2.20I know where most of the figures came from but I really don’t know how they got the 2/3 in the share capital calculation or the 2/2 in the deferred cash payment calculation or the 2 in both the cash payment and the value of net investment calculations above.
I would really appreciate a response, I didn’t get to do F7 as I had several exemptions, so all these are kind of new to me and I don’t think I have the time to go through all the course notes for F7. Thank you so much in advance.
“In W1, I don’t know how they got the split 5:7 or even how they got the profit on TNCA transfer.”
The 5 : 7 split is the number of months pre : post acquisition
Profit on TNCA transfer is GIVEN!! Penultimate word on line 1 of note 2
“Share capital 75% x 40000 x 2/3 x 1 x $4.30
Deferred cash payment 75% x 40000 x 2/2 x $1.21 x 1/1.10 x 1/1.10
Cash payment 75% x 40000 x 2 x $0.60
Value of net investment 25% x 40000 x 2 x $2.20”40,000 x 2/3? $40,000 is the value of the Danute share capital but the Danute shares have a nominal value of 50 cents so the NUMBER of Danute shares is 40,000 x 2 = 80,000
Ausra acquired 75% of 80,000 shares and for every 3 shares acquired Ausra issued 1 new share of her own with a market value of $4.30
Hence “75% x 40000 x 2/3 x 1 x $4.30”
“75% x 40000 x 2/2”
2/2 – the numerator is to multiply the 40,000 by 2 to get the number of shares and, for every 2 shares acquired (hence the denominator) ……
Same explanation for the “2” in both the cash payment and in the value of the nci investment (not the NET investment as you have posted)
Have you watched the video of me working through this question on the screen?
Thank you Mike for your quick response. I guess I’d have to listen to some of the lectures to have a better understanding of the solutions. Much appreciated.
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