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Hi mike
Just a quick question, why was 2m added to retained earnings for this year in the solution for the purposes of calculating fair value of net assets at date of acquisition, I cant seem to spot where you got it?
You ended up with 21000+2000=23000/2=11500
Cheers
Hugh
Because the figures given in the question wee the results for the year and they included the loan interest. But that loan interest was specifically paid on a loan that only existed for the second half of the year.
So, get back to pre-loan intest position (21,000 + 2,000) 23,000
Split into two six month periods = 11,500 pre- and post-acquisition.
Now deduct the loan intest from the appropriate half year = 9,500 profits in the second half and 11,500 as at date of acquisition
Ok now?
That makes sense, however there is no mention of a loan in the question I have infront of me! Never the less the method makes sense I will remember this method if I see it again
Cheers
Hugh
Hi
I’ve done it again :-(. The subsidiary was acquired part way through the year and immediately after acquisition the parent invested in a loan note issued by the subsidiary ($50,000 8% loan)
The question is a straight lift from December 2009 question 1
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