- This topic has 12 replies, 3 voices, and was last updated 9 years ago by
.
- Posts
hello sir i have a pretty odd question, what happens if we get a situation where the acquiree has negative net assets?
Why would you buy it?
And how much would you pay?
How much are the shares worth?
Yes, you’re right! It is a strange question
In fact sir, i have never came across such a scenario, thats why im asking what should we do in case this happens in exams.
i think the p2 examiner can think of something plausible to make such a scenario possible.
i guess anything should be possible with acca….(just some random figures)
Purchase price= 200k
Net assets= -50Kso goodwill = 250k?
doest seem rightI would almost guarantee that such a scenario will NOT come up, neither in a P2 exam nor in practice!
If a company has negative assets (net liabilities) why PAY anything? Why not simply ask (if you’re that keen) the directors and shareholders to let you take over the liabilities?
At the moment I own a company that has Share Capital of €100, Retained Earnings of €(350) and Net Assets less Liabilities of €(250)
Will you pay me money to buy my €100 share capital?
Hmmm!
hmm a new start up tech company who is developing a very promising technology for the future, probably incurring losses and need fundings leading to a negative net worth. A big company like goggle or apple may be interested in buying them out…just a thought lol
If they have negative net assets, why would anyone buy them out?
You would only buy something of value
Now …… although their book valued assets may be negative, their knowhow and / or other intangibles may have a value greater than book value.
When Apple or Google comes along, the net negative assets will be reappraised at fair value for the purposes of the vulture swallowing the victim and, in that situation, the FAIR VALUED net assets may in fact have a positive value
Ok?
That could be a possible scenario for the exam, i hope the examiners doest read the forums lol
- You must be logged in to reply to this topic.