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Sir, could you answers the following question for me please!
Tempo Co acquired 100% of the equity shares capital of Lento Co. This consisted of 40,000 shares of $0.50 each. It paid for the acquisition by issuing 60,000 new shares of $1 each in Tempo Co, and exchanging three new shares in Tempo Co for every 2 shares in Lento Co.
The market value of Tempo Co shares at the time of the acquisition was $3.50 per share. The fair value of the net assets acquired in Lento Co was $50,000.
What was the goodwill arising on the acquisition of the shares in Lento Co by Tempo Co?
I am guessing you have got this question from the Kaplan book – however it cannot be asked in Paper F3!
The amount of the consideration is 60,000 x 3.50 = 210,000.
The fair value is 50,000So the goodwill is 160,000.
Actually sir.. it’s from BPP.
When I saw this question I couldn’t solve it.
Could you give an insight to how that answer is derived, though it may not be asked?
Nd… Why do you think this question was in the book (which is the latest)?
The value of the shares being issued is 3.50 each. The number of shares being given is 60,000. So the total value being given is 60,000 x 3.50 = 210,000.
It may be in the BPP book, but neither BPP nor Kaplan are perfect!
All of their books contain errors (for example, Kaplan have issued a 3 page list of errors for their F9 books!). We are not perfect either, but as soon as we see an error (or when somebody points out an error) then we correct it immediately.
This is not an arithmetical error by BPP, but issuing shares as payment is not really examinable until Paper F7.
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