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Hi can you explain how they are calculating the deferred cash element in this question. Their calculation is (2/5*80%*3*0.826). Im not understanding what they are doing here because im getting a different answer. Please explain. Thank you!. This question is from the Pre June mock exam.
On 1 January 20X3, Persistent Pharma Co acquired 80% of the equity share capital of Smart Pharma Co. The share capital of Smart Pharma Co consisted of 7 million shares of $1 each. Persistent Pharma Co settled the consideration by issue of two new shares in exchange for every five shares it acquired. A further consideration was payable on 31 December 20X4 at $3 per share acquired.
On the date of acquisition, the fair value of each share of Persistent Pharma Co was $6.50 and that of Smart Pharma Co was $4. Its cost of capital is estimated to be 10% pa.
(a) Calculate goodwill at the date of acquisition and at 30 September 20X3.
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