DFS - Goodwill

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Can anyone explain how to get the answer to this question?? I cant figure it out!!

Active PLC invested £220K in 120,000 ordinary share of 50 pence each of Doldrums PLC. The issued share capital and reserves of Doldrums PLC at the time of acquisition were £80k in shares and £60K in reserves (£140K in total).

What is the value of goodwill arising on acquisition?

The answer says £115K - I dont get that....

Can anyone show me step by step what to do so i can see where i'm going wrong?? :roll:

Thanks in advance x

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DFS - Goodwill

    I've got DFS next week too. At least there's one thing I know how to do :)

    1. Work out what percentage of Doldrums Active owns.
    Active bought 120,000 shares @ 0.5 = £60,000. Doldrums' share capital is 80,000 so Active owns 60/80 = 75% of Doldrums.

    2. Work out what Active got for its money.
    The assets of Doldrums amount to £140,000 of which Active now owns 75% = £105,000.

    3. Calculate the goodwill
    Goodwill is the difference between what was paid (the consideration) and the assets acquired. In this case Active paid £220,000 for £105,000 worth of Doldrums' assets. So, goodwill = 220,000 - 105,000 = 115,000
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DFS - Goodwill

    It seems so easy when you explain it like that.... I had a total mind block!!

    Thanks for the quick reply CJC & good luck for next week!!

    Stacey x
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DFS - Goodwill

    Thanks, that helped me out to. We've been learning that again at college but I still couldn't understand it !

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