FAGoodwill

As far as F3/FFA paper is concerned, always remember that in consolidation, we take FULL amount of both Share Capital and Share Premium. This is because the consideration paid by parent + NCI at acquisition equals the Equity (Net Assets) of the subsidiary. The excess amount is declared goodwill i.e They paid excess amount than equity in order to buy the goodwill as well. Hope it helps.

Thanks a lot=)

Sorry, another question. Anybody can help me? Question: P acquired 80% of S shares via a 2 for 1 share exchange. At the date of acquisition, the following balances were in the books of H and S: Parent Co. Share Capital ($1) $400 Share Premium $100 Subsidiary Co. Share Capital (0.50c) $400 Share Premium $50 The share price of P was $2 at the date of acquisition. This has not been accounted for. What is the cost of acquisition for the share exchange. Answer : $400 at 50c = 800 shares x 80% = 640 shares 640 shares x 2 = 1280 shares x $2 = $2560 My question is i don't understand what is 2 for 1 share exchange (640 shares X 2) ? Thanks in advance.

Another again...=( wonder i can pass or not... Parent Co. Share Capital ($1) $100 Share Premium $100 Subsidiary Co. Share Capital ($1) $100 Share Premium $100 P acquired 80% of S shares via a 3 for 2 share exchange. The share price of P at acquisition was $3. This has not been accounted for. What is the figure of the share premium amount for the share exchange. Answer is : $100 at $1 = 100 shares x 80% = 80 shares 80 shares x2/3 = 120 shares at $3 = $360 $120 share capital $240 share premium My question is why Credit share capital $120, and credit share premium $240? =(

None of the goodwill question i understand .... cry.... < i'm self study> Q: Able Co. bought 51,000 shares in Baker on 1.1.2011. Baker had 60,000 shares in issue on this date. Able Co. paid $1.25 for every share in Baker and gave Baker’s shareholders 3 shares for every 2 shares acquired. The nominal value of Able’s shares is $1 per share and their fair value at the date of acquisition has $2.30. What was the consideration Able has paid to control Baker? A: Abel bought 51000 shares out of Baker 60000 shares = 85% cost of aquisition = $239700 cash (51000 x $1.25) = $63750 share exchange = $17550 (51000/2x3 x $2.30) My question is why the answer will be $239700? Anyone can help me ? =(=(=(

In answer to your first question,the subsidiary has 800 shares total.The parent is acquiring eighty per cent.In order to do this it offered two of its shares for each share it intended to acquire.80 x 800/100=640 shares it intended to buy.Its offer of two shares for one therefore. required it to issue 1280 of its own shares to buy eighty per cent of the subsidiary's shares.These shares had market price of two dollars so the total cost of acquisition was 2560 dollars as market values are used in these calculations.

1st Question: P acquired 80% of S's shares via a 2 for 1 share exchange. S's share capital is $400 $0.5 shares. $400/$0.5 = 800 shares It means S has 800 shares in issue (800 shares x $0.5 = $400) Now, P acquired 80% of these shares. 800 x 80% = 640 shares Now, lets understand the 2 for 1 share exchange. In order to acquire shares of S, P needs money. For this purpose, he offered his own shares in the market at a market price of $2 per share. He obtained 1 share in S by offering his own 2 shares to the market (2 shares of P sold, 1 share of S purchased). So, 1 share of S purchased = 2 shares of P sold 640 shares of S purchased = 2x640 shares of P sold 640 shares of S purchased = 1,280 shares of P sold Market Price of P's share was $2. It means that P obtained $2,560 (1,280 x $2) and this amount was PAID to acquire S's 640 shares. Conclusion: P acquired 80% of S's shares (640) by paying $2,560. This money was obtained by offering P's shares (1,280) to the market at a price of $2/share.

2nd Question: I'm not gonna do the complete question. I'll only do one step and the rest should be easy for you. 2 shares of S purchased = 3 shares of P sold 1 shares of S purchased = 3/2 shares of P sold 80 shares of S purchased = 80 x 3/2 shares of P sold 80 shares of S purchased = 120 shares of P sold

3rd Question: This ones a very very tricky question. Although the examiner can ask a question like this, I cannot expect such questions under normal circumstances. It cannot be solved within 2.4 minutes. Since practise is the key to perfection, we'll prefer practising it anyway. A acquired 51,000 shares in B (85%). The consideration was paid in 2 ways: $1.25 for every share in B. 3 for 2 share exchange (2 shares of B purchased = 3 shares of A sold) The sum of both these methods will equal $239,700. A's shares were sold at Fair Value of $2.30. After earlier 2 questions, i hope & expect you to solve it easily.

Hi Can you please provide an 'understandable' definition of Goodwill. I know the calculation of how to attain it but I don't understand what it actually is and the purpose it.

@thezadzzz said: Hi Can you please provide an 'understandable' definition of Goodwill. I know the calculation of how to attain it but I don't understand what it actually is and the purpose it.

Goodwill represents the value over and above the book value of the net assets acquired. Let's take a simple example. Business A buys Business B for £20m cash which has net assets of £10m. In simplified terms, the accounting double entry for Business A is: Cr Cash £20m Dr Assets £10m (in real life this will be many different assets and liabilities, but the sum total will be a debit of £10m) Dr Goodwill £10m Think about what would happen if you DIDN'T have goodwill. If you don't have goodwill, to complete the journal you would have to debit something else. You can't debit any other assets as there isn't anything else which exists. Therefore you would have to debit the P&L £10m. This means you just made a £10m loss when you bought the business! Surely that can't be right? When a business buys another business, they buy it because it will make them money. Therefore, a business will often pay more than the value of the net assets to buy it. Business valuation techniques are covered in later exams, but in our example, if Business B generates profits of £2m per year, and Business A's cost of capital is 10%, Business B would be valued at £20m. Therefore, when Business a buys Business B for more than the sum of its net assets, it is buying it because it expects Business B to generate profits. This has to be capitalised as an asset and that it what goodwill represents.