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Hi guys,
I still have this basic problems on which figure to use as cost of investment.
In June 09 paper- Pacemaker, Syclop, vardine. Do I take 75 million or 30 million as the number of shares acquired?I always get confuse because the Plateau, Savannah and Axle question, the cost of investment, do we take 3 milliion or 1.5million shares as the number of shares acquire?
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Q1J09:
Pacemaker acquired 30m shares of Vardine (Associate) in exchange of 75m of its own shares. FV of Pacemaker ‘s shares was $1.6 eachTherefore, investment cost to Associate = 75m shares x $1.6 per shares = $120m.
$120m is also value of 30m shares of Vardine.Q1D07
You need to distinguish which investment from Plateau to Savanah & Axle.
I think you are confused this issue.
The first step for every Considation exercises is Group Structure. It is simple but very important. If you make it wrong, you will calculate wrong next stepsCome back to this question:
Plateau has 2 investments: Investment to Savannah & Investment to Axle
+ Investment to Savannah:
Plateau acquires 3m shares of Savannah of total 4m shares of Savannah (on draft BS) ==>
Plateau acquires (3m/4m x 100%) = 75% of Savannah.
–>Savannah is subsidiary of Plateau.Investment cost to Savannah (FV Purchase consideration) is inclusive of:
+ Exchange shares: (3m shares / 2 shares) x 1 shares x $6
+ Cash: $1 x 3m shares+ Investment to Axle:
Plateau acquires 30% of the equity shares of Axlex ==> Axlex is Associate of Plateau (not Subsidiary). So Plateau will not control g/w of Axlex. It is different with Subsidiary at which Plateau will control g/w of Subsidiary.Investment cost to Axle (Associate) = 30% x 4m shares x $7.5
Hope it makes you clearer
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