Mini Exercises - Goodwill (Question 16)

On 1 January, 2014 P acquired 80% of the $1 equity shares in S. The consideration was settled by a share for share exchange of 2 shares in P for every 3 shares in S acquired. At the date of acquisition the respective fair values for the shares in P and in S were $3 and $2.50. In addition, P has agreed to pay 27.5 cents per share acquired on 1 January, 2015. The directors of P value non-controlling interests on a fair value basis and the share price of the S shares can be taken to be representative of the fair value. P’s cost of capital is 10% per annum. Profits for the year for P and for S were $8,000 and $2,000 respectively At the date of acquisition the carrying value of the S net assets was equal to their fair value with the exception of the S property that had a fair value $4 million in excess of its carrying value Extracts from the two companies’ financial statements as at 30 September 2014 were: P S $1 Equity shares 10,000 9,000 Revaluation surplus 2,000 -Retained earnings 6,300 3,500 -> As per solution in the course notes; Ret earnings b/f 1,500 Ret earnings 6 months 1,000 As per my understanding of the question; Ret earnings b/f 1,500 Ret earnings 3 months 500 Sir, what am i missing in the question, Pls kindly explain sir.