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Technical Problems
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Thank you very much for the clear explanation!!!
can you clear one doubt of mine regarding purchase consideration.
A acquired 70% OF B.
PURCHASE CONSIDERATION = 20 m shares
market price of a’s share – 2 dollars
market price of b’s share = 4 dollars
my question is why is purchase consideration calculated of market price of a’s share and not b’s market price while calculating goodwill.
fair value of consideration = 20*2 = 40?
How much value did A have to pay to acquire 70% of B?
in the question it is given that finance director determined bargain purchase was 8 million dollars being purchase consideration of 40 million dollars less the fair value of identifiable net assets of 48 million dollars.
Again, the same question! How much value did A hand over to acquire 70% of B
Incidentally, BOTH values are used in the calculation of goodwill …
… because goodwill is essentially the difference between the value of the purchase consideration when compared with the fair value of the acquiree’s net assets
OK?
Q#2 Rey, Finn and Ben I have an issue with the depreciation, i dont understand why 2 yrs and not 1 yr as the date of acquisition was Jan 2014 and the date of the financial year is Dec 2015. Kindly explain i think that i’m overlooking something. Thanks
Hey you may have figured this out already but:
1st Jan 14 – 31st Dec 14 = 1 year
1st Jan 15 – 31st Dec 15 = 1 year
So, its two years in total 馃檪
Why did we not prorate the dividend for 6 months as we did for the associate profit from the time we acquired it
FV adjustment for assets was really tricky to get on taking that you need to find the balancing figure first and then count 2 years depreciation.
thanks for this example!
Hello! Thank you for the lectures! They are very helpful! Why in W5 when we take 70% of retained earnings, we take 70% of 270 (total NA post acquisition) and not of the line “retained earnings” post acquisition. We know that the total is 270, the share capital is 1000, not sure what to do with FV adjustments, so we could calculate the exact line retained earnings.
The remaining 30% are attributable to NCI
Hi,
Thanks for the kind comments, it’s always great to hear that people benefit from what we do here at Open Tuition.
As there are no other components of equity within the question we can just take the movement in net assets as the movement in retained earnings. If you wish the 270 comes from the increase in retained earnings of 350 (800 – 450) less the depreciation 80 on the FV adjustment that would go through retained earnings too.
Thanks
Hi,
You mentioned that adding the assets and liabilities across in the CSFP doesn’t give any mark in this exams, so should we ignore doing that?
Hi,
If you ignore adding them across then you would not lose any marks, but if you are a marginal candidate then it would work in your favour if you were to add them across.
Thanks
Hi,
Thanks for lectures they are very helpful.
Can you please let me know how you arrived at the acquisition share capital of 1000 in example 2.
Thanks.
Hi,
I’m glad you find the lectures very helpful.
The acquisition share capital of the subsidiary will always be the same as the share capital at the reporting date. The reporting date share capital can be found in the statement of financial position of the subsidiary.
Good luck with the rest of the course.
Thanks