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Hi
I encountered the question which asks about the fair value of S’s net assets at the date of acquisition. It says that S had been experiencing difficult trading conditions and making significant losses. S had 12m $0.5 shares in issue at the day of acquisition. The company P acquired 75% of S and in allowing for S’s difficulties made a payment of $1.5 per share. The listed market price at that time was $1.2 per S’s share.It also says that P’s policy is to value the NCI at FV at acquis.date. For this purpose S’s share price at that date can be deemed to be representative of the FV of the shares held by NCI.
The answer says that FV od S’s shares (net assets) is $6m (12mx $0.5). Why not take the market price of the shares? Especially if it is said in the scenario that ” the share price can be deemed to be representative of the FV”?
If its true for the NCI isn’t it also true for the whole entity?
Is it because of the losses?
Is there any rule for stating what’s the fair value of shares?Thank you!
Hi,
Where is this question from, please? I may be wrong but I’d have thought that in order to calculate the FV of the NCI then we use S’s share price.
It looks a bit confusing too, as if the NCI own 25% then they would own 25% of the 12 million shares in issue, plus I’m not too sure why the figure is $0.5 either.
Thanks
Hi,
This is Polestar OTQ question 268 in bpp practice and revision kit page 78. Thanks.Hi,
Q.268 is asking for the fair value of the net assets, so we are looking at the net assets working. There is an enormous amount of information in the question but all we need are the share capital figure of S and its retained earning at that date, plus we then look at the fair value adjustment, which here is in relation to part (i). There is no requirement to look at the share price or anything else.
Thanks
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