Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Computation of G/W for acquisition
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- August 27, 2022 at 2:36 pm #664429
Johanna acquired 100% of Sidney on 1 January 20X4, paying $5 million cash, including
$200,000 professional fees. Johanna also agreed to pay $10 million on 1 January 20X6.
Johanna Co has a cost of capital of 10%
Identify the components to be included within the calculation of goodwill for the
acquisition of Sidney Co for the year ended 31 December 20X4.
Consideration
1 cash consideration of 5 m
2 cash consideration of 4.8 m
3 deferred cash consideration of 8.3 m
4 deferred cash consideration of 9.1 mThe correct answer is 2 & 3
But according to me it should be 1 & 4
1 because professional fees can not be reduced while calculating the consideration &
4 because PV of deferred cash consideration as increased by the interest charge of one year from 8.3 m * (1.1) = 9.3 MPlease explain
September 1, 2022 at 7:31 pm #664889Hi,
It is definitely number 3 as the present value of the $10 million is 10m/1.1^2. I’m not too convinced by them saying the cash consideration is $4.8 million when we are clearly paying $5 million.
Thanks
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