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Sir,
Can you please explain why in the calculation of Goodwill, RE as at 30/9/13 is taken? I understand that the balance is as at the year end so we just need to add back $2300 loss (from P&L)
I am not sure where I am getting it wrong? I have copied the link for the paper as I thought it might be easier for you to read rather than copying the whole question here.
Also if that’s the case – why they have not included $18000 in Consolidated RE calculation?
I am not sure whether it’s the exam pressure or genuinely I have forgotten how to calculate these two 🙂
Thank you again.
6,000 of the 18,000 is share capital!
Retained earnings brought forward should be 16,600 and 6 months’ loss of 2,300 means 14,300 retained earnings at date of acquisition.
Does that help?
That’s exactly what I calculated – 14300. But see below the extract from answer:
(Where it says Net Assets 18000 i.e. shares 6000 + RE 12000)
Thanks a million for your answers.
(iii) Goodwill in Southstar
$’000 $’000
Investment at cost
Immediate cash consideration (6,000 x 2 (i.e. shares of 50 cents) x 75% x $1·50) 13,500
Contingent consideration 1,800
Non-controlling interest (12,000 x 25% x $1·20) 3,600 –––––––
18,900
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 2,000 ––––––– Net assets at date of acquisition (22,300)
––––––– Bargain purchase/negative goodwill – credited directly to profit or loss (3,400)Is this the area about which you have concerns?
“Retained earnings brought forward should be 16,600 and 6 months’ loss of 2,300 means 14,300 retained earnings at date of acquisition.”
If so, it would be like this:
We know that retained earnings as at date of acquisition were $14,300 and that’s after adding the 6 months’ pre-acquisition profit of $2,300, that means that the profit figure brought forward at the start of the year must have been $12,000
Is that OK?
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