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P2-D2.
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- May 28, 2024 at 5:01 pm #706193
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 300why 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)
June 1, 2024 at 10:08 am #706358Hi,
We need to calculate the retained earnings figure at the acquisition date of 1 April 20X0. In the information in the question we are not given this figure so need to calculate it from what we have at our disposal.
We are given then retained earnings at the 1 January 20X0 and will need to adjust these using the profit for the year figure given by adjusting the 1 January 20X0 for the three months until 1 April 20X0.
Have a go using the information above to see how you get on and let me know if you’re still struggling.
Thanks
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