On 01 July 2022, X Ltd acquired 551,260 ordinary shares of Y, that is, X Ltd holds 70% shares in Y Ltd. The purchase consideration was as follows:
?Cash paid $ 960,000
?A deferred cash settlement to be paid in three years’ time of $ 470,000
?By an exchange of one share in X Ltd for every four shares in Y Ltd. The market price of x Ltd share at the date of acquisition was $ 2.95 and the market price of y Ltd share at the date of acquisition was $ 3.15
Legal fees associated with the acquisition were $ 10,600.
The discount rate of X Ltd is 10 %.
Can you please help me out with this question please? for calculating the cost of investment
Here are my workings:
Cost of investment
Cash $960,000
Deffered cash 1/1.1^3*470,000
Share for share 70%*1/4*551,260*2.95.
Is my calculation good?
My issue is that sometimes the share needs to be multiplied by the % holding of the parent and sometimes not, and for the legal fees is not included right?
Consolidation
3y ago#1Hi,
Your calculation of the share exchange does not need to incorporate the percentage holding of 70%. The number of shares acquired of 551,260 is what has given us the 70% holding and so we just need to use the 551,260 figure to work out how many shares in the parent were issued. You've done this correctly using the 1/4 and the $2.95 share price of X shares.
Thanks
thank you and concerning the deffered cash is it good?
and how to identify whether we have to multiply by the % of holding or not.(concerning the shares)
3y ago#3Yes, your deferred consideration calculation looks correct too.
Regarding whether you have to multiply by the % holding depends upon how the question is phrased when looking to calculate the number of S shares acquired. If you are given the number of S shares acquired then you don't need to use the % holding as this number of shares equates to the % held, as in the example above. If you are given the total number of shares in issue in the subsidiary, say 100,000 and we own 70% then you would need to look use the 70% holding to work out the number of S shares acquired, i.e. 70% x 100,000 giving 70,000 S shares acquired.
Thanks
Thank you so much now it is more clear !
Can you explain why we take the market price of the parent when calculating the share exchange rather than for the subsidiary market price please?
3y ago#6It is because we are issuing shares in the parent.