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Hi John,
Hope you are well.
In the question indicated above, in the report answer to part (b), there is a calculation done to get the figure for the ‘Total Value Attributable to Anatra Co’s Investors’ which is calculated as $37,350 million. They calculated this by adding the equity MV, debt MV and premium payable to the shareholders of the company being acquired – This is all fine. However, when calculating the total value attributable why didn’t they also add the Reserves of $4,520 million? (which is given in the SOFP details for Anatra in addition to the equity and debt figures used). If not I assumed at least there would be a mention of why not in the estimates and assumptions part of the report – maybe on this value being taken into consideration in the premium payable?
Hopefully you understand my question and I haven’t confused you.
Appreciated.
The figures on the SOFP are always only book values – they never show the true value of a business.
The true value is the PV of the future flows – the share capital and reserves on the SOFP are always meaningless figures and only exist for financial accounting purposes.
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