ER March/June 2021

Platinum Co acquired 80% of the ordinary share capital of Palladium Co on 1 April 20X0 by means of cash and contingent consideration. At this date, Platinum Co assessed the fair value of contingent consideration at $250,000. Platinum Co calculates non-controlling interest using the fair value at the date of acquisition which was estimated to be $100,000 and the goodwill arising on acquisition was $300,000. The following figures for Palladium Co are relevant: $000 Ordinary shares of $1 each at acquisition 500 Retained earnings at 1 January 20X0 (300) Profit for the year ended 31 December 20X0 120 The profits for Palladium Co have accrued evenly throughout the year. What was the cash consideration paid by Platinum Co for the investment in Palladium Co? (Answer in $ in the Answer box) The correct answer is $180000. WORKING $000 $000 Fair value of consideration transferred: Cash consideration (balancing figure) 180 (answer) Contingent consideration 250 Plus fair value of NCI at acquisition 100 Less fair value of net assets acquired: Shares 500 Retained losses at acquisition (1 April 20X0): At 1 January 20X0 (300) + 3 months’ profit (120 × 3/12 months) 30 (230) Goodwill at acquisition 300 why does we count the 30 in too? doesnt we count for something in the past? why does we include something from the future? and if we does include it, why do we take only 3 months instead of 9 months or 12 months (since they didnt give the financial period of the company)