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H acquired 60% of S paying $9 per share in cash.
Since S was having financial troubles and it is one of H’s main suppliers, the acquisition was motivated by need to secure supplies. So H made a non-dated loan ON the date of acq of $4m.
My question is, should this loan be taken as a part of consideration for acquisition to calculate goodwill? (im confused since it says it is on the date of acquisition.)
i tried to find the solution, but didnt get it.
This is june 2006 paper. Q1 Hyden and Systan
No, do not include the $4m as part of the purchase consideration.
There is a confusion here in your mind that needs to get cleared up quickly
When an entity buys another, acquires it, takes control over it, purchases a controlling holding of that other’s shares … it pays consideration.
Ask yourself “To whom is that purchase consideration paid in order to obtain control?”
Now ask yourself “To whom was that $4m lent?’
Answer those and come back to me if you still have doubts
You’re welcome – it’s such a good feeling when you work it out for yourself (with a bit of a push in the right direction) isn’t it 🙂
yes absolutely!
especially when the guidance comes from exemplary professors like you!
thanks again!
onto another question paper now!
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