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it may seem that this topic confuses me a little since the workings are a little on the complex side for me i need to know if there is an easier way to calculate each figure
You have to learn the rules – obviously you don’t know for any of the questions in the exam whether or not you have got the answer right!!
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?
A $10,000
B $40,000
C $140,000
D $160,000
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Hi sir, please help me to find a route to solving this one 🙂I am guessing that you found this in a Kaplan book and they should not really have included it – paying the consideration in shares isn’t really F3 but F7.
However, the value of what Tempo is paying is 60,000 shares that are each worth $3.50, which is a total of $210,000.
From then on, everything is exactly the same as if they had paid cash of $210,000.
So…….the goodwill = 210,000 (consideration) – $50,000 (value of net assets) = $160,000
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