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please i need help with this.
zed company acquired 75% of bee company shares by means of a share exchange of 2 new shares in zed for every 5 shares acquired in bee. in addition zed issued to the shareholders of bee a $100 10% loan note for every 1000 shares it acquired in bee.
please what are the relevant entries. i always get it muddled up.
Don’t worry about the “entries”
What you are looking for is the calculation to find the figure to include within the working W2 Goodwill calculation
Then I’ll tell you the entries
The calculation is:
75% x Bee’s shares (it would have helped if you had told me the detail of Bee’s shares!) x 2 / 5 x the market value of Zed’s shares (it would have helped if you had told me the market value of Zed’s shares)
In fact, I’m not going any further until you post again with FULL information.
Have you tried the mini exercises at the back of the course notes on this topic and worked through the example at the end of chapter 8?
apologies for my scanty information. i’ll go back and look at the mini exercises immediately. meanwhile please see the full details of the question:
on 1 october 2012 zed acquired 75% of bee’s equity shares by means of a share exchange of two new shares in zed for every five acquired shares in bee. in addition, zed issued to the shareholders of bee a $100 10% loan note for every 1000 shares it acquired in bee.
the market value of zed at 1 october 2012 was $2 each.
zed shares 40,000 at $1 nominal price.
bee’s shares 20,000 at $1 nominal price.
many thanks
OK, the value of the Zed shares issued in exchange for 75% of the shares of Bee is as follows:
75% x 20,000 x 2 / 5 x $2 = $12,000
The loan element calculation is as follows:
75% x 20,000 / 1,000 x $100 loan note = $1,500
The double entry for the loan is:
Dr Cost of Acquisition Account $1,500
Cr Long term liability Account $1,500The double entry for the share issue is:
Dr Cost of Acquisition Account $12,000
Cr Share Capital Account $6,000
Cr Share Premium Account $6,000OK?
You’re welcome and, next time, make sure that you give me ALL relevant information
🙂
please permit me to indulge you a little more on a similar but extended question. i use the same names for continuity.
Assuming all the information above remain the same as shown below
on 1 october 2012 zed acquired 75% of bee’s equity shares by means of a share exchange of two new shares in zed for every five acquired shares in bee. in addition, zed issued to the shareholders of bee a $100 10% loan note for every 1000 shares it acquired in bee.
the market value of zed at 1 october 2012 was $2 each.
zed shares 40,000 at $1 nominal price.
bee’s shares 20,000 at $1 nominal price.BUT THE examiner added the following in the balance sheet as at the reporting date:
zed bee
investment(note 1) 7,500 3,200note 1: at the date of ACQUISITION, zed carried out a fair value exercise on bee’s financial asset equity investment which were equal to the carrying amount.
but The fair values as at the REPORTING DATE are $7,100 for zed and $3,900 for bee.
please what implication does these additional information pose on the $12, 000 (cost of combination-equity) and $1,500 (cost of combination-debt) which you computed earlier for me.
many thanks
“please what implication does these additional information pose on the $12, 000 (cost of combination-equity) and $1,500 (cost of combination-debt) which you computed earlier for me.”
None that I can see
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