When valuing the company you are adding share capital and retained earnings to get a purchase price; why are the assets and liabilities not included in the calculation of what the company is worth?
You should remember from the free lectures working through Chapter 2 of our notes that the share capital plus retained earnings is equal to the net assets of the company.
However this is not the purchase price, it is compared with the purchase value to calculate the goodwill.
Thank you, I see that now. I am really very impressed with this whole series of lectures, I have never really understood accounting before and this is making it so clear and easy to follow.
I do have a confusion ..when calculating the net assets of subsidiary we took share capital of s which was 10000.. shouldn’t we take the share capital of 60000 which was the value for acquisition…am confused here.. please help
In example 3; why we are taking fair value adjustments while preparing consolidated statement. Since the “S” was acquired in 2005 and we are preparing consolidated statement in 2009, there are 5 years in between (including both years). So, “S” would have added the revaluation impact in its books anytime in between these years since the revaluation was carried out on or before acquisition. In that case we simply would have been adding up fixed asset amounts appearing in both the companies statement. This example shows that “S” has not added the revaluation impact, how “S” could do that? How revaluation impact left remain un-adjusted for number of years? does it happen in real life?
jaee says
Thank you for the great explanation. Very clear.
smashcroft says
When valuing the company you are adding share capital and retained earnings to get a purchase price; why are the assets and liabilities not included in the calculation of what the company is worth?
John Moffat says
You should remember from the free lectures working through Chapter 2 of our notes that the share capital plus retained earnings is equal to the net assets of the company.
However this is not the purchase price, it is compared with the purchase value to calculate the goodwill.
smashcroft says
Thank you, I see that now. I am really very impressed with this whole series of lectures, I have never really understood accounting before and this is making it so clear and easy to follow.
John Moffat says
Thank you for your comment 馃檪
naiyaz says
I do have a confusion ..when calculating the net assets of subsidiary we took share capital of s which was 10000.. shouldn’t we take the share capital of 60000 which was the value for acquisition…am confused here.. please help
John Moffat says
The net assets of S are equal to the share capital of S.
naiyaz says
Didn’t get!?
naiyaz says
Okay I get I thought 60000 was for s but that was for p which bought … thank you..
Asif110 says
Beautifully made easy !
shakir7385 says
Hi Mr. John
In example 3; why we are taking fair value adjustments while preparing consolidated statement. Since the “S” was acquired in 2005 and we are preparing consolidated statement in 2009, there are 5 years in between (including both years). So, “S” would have added the revaluation impact in its books anytime in between these years since the revaluation was carried out on or before acquisition. In that case we simply would have been adding up fixed asset amounts appearing in both the companies statement. This example shows that “S” has not added the revaluation impact, how “S” could do that? How revaluation impact left remain un-adjusted for number of years? does it happen in real life?
John Moffat says
There is no requirement for S to revalue. Most companies do not revalue their assets.
kamo7293 says
Excellent lecture. Everything was laid out so clearly that I was able to complete Example 4 without help and got it all right
rehantemuslim says
Amazing Lecture at a great pace. Enjoyed it thoroughly. Great Talented Teacher. 馃檪
John Moffat says
Thank you for your comment 馃檪
nawal2000 says
Sir i wanted to ask do we take profit after tax as retained earnings, and if we do, should we take the post or pre acquisition?
John Moffat says
The post-acquisition profits after tax.