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On January 1 2022, the company bought 1,600,000 of the ordinary share capital of Negril Limited at a price of $7,600,000 and 30% of the ordinary shares of Cove Limited for $400,000. The total share capital of Negril Limited was 2,000,000 $1 ordinary shares. At the date of the acquisition the retained earnings of Negril Limited was $76,000 and the general reserve balance was $123,000. Cove Limited is a small distribution company in Hanover with a share capital of 600,000 $1 ordinary shares.
The purchase consideration for Negril Limited was satisfied by the issue of 3 ordinary shares in Hanover Agencies Limited for every 4 shares acquired in Negril Limited. At this date the market price of a share in HAL was $3.20. The balance on the purchase consideration represents an issue of $2,000,000 in 10% loans stocks by HAL to the shareholders of Negril Limited and a deferred cash payment, to be satisfied in 5 years’ time (appropriate discount rate 9%).
Calculate the goodwill acquired by HAL on the acquisition of Negril limited.How would i approach the above question?
Hi,
I’d start by looking at the standard calculation of goodwill. You can then breakdown the calculation into smaller components so that you can work out the net assets at acquisition, which then also helps with the NCI calculation. Give it a go and see how you get on. I can then let you know how you’re getting on before we then look at the other parts to the calculation.
Thanks
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