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Hi!
I am a bit confused on the way Goodwill was calculated in December 2013 exam (polestar/southstar). Why post acquisition losses have been added back?
I thought the correct method would have been to subtract the pre acquisition loss:Net assets (equity) of Southstar at 30 September 2013 18,000
pre-acquisition losses (4,600 x 6/12) (2,300)
Fair value adjustment for property 2,000while in the answer paper it is shown:
Net assets (equity) of Southstar at 30 September 2013 18,000
Add back: post-acquisition losses (4,600 x 6/12) 2,300
Fair value adjustment for property 2,000What is the ratio behind it?
Many thanks!Hi,
If memory serves me right then this was a mid-year acquisition and we are trying to calculate the net assets at the acquisition date.
If the net assets are given as 18,000 at the reporting date, then we need to work backwards to get the net assets at acquisition. The post acquisition losses will hve reduced the net assets since the acquisition date, so in order to get back to the net assets figure at acquisition we would need to add it back given that the losses have reduced the net assets figure.
Hope that clears it up, it was a tricky one in the exam.
Thanks
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