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Help please DFS

jewels.pjewels.p Font Of All KnowledgeRegistered Posts: 1,774
Active PLC invested £220,000 in 120,000 ordinary shares of 50p each of Doldrums PLC. The issued share capital and reserves of Doldrums PLC at the time of acquisition were £80,000 in shares and £60,000 reserves.

What is the value of goodwill arising on acquisition.

I calculated it as £220,000 (cost) - £140,000 (net assets) = £80,000

Wrong!

Answer should be £115,000

Where did I go wrong?

Comments

  • sdvsdv Experienced Mentor Registered Posts: 585
    jewels.p wrote: »

    What is the value of goodwill arising acquisition.

    I calculated it as £220,000 (cost) - £140,000 (net assets) = £80,000

    Wrong!

    Answer should be £115,000

    Where did I go wrong?


    the calculation shoud have been:

    £80,000 in share value = 80,000 x 2 = 160,000 shares issued

    shares acuquird = 120,000

    therefore % company acquired = 120,000 / 160,000 x 100 = 75%

    value of subsiduary at the date of acquisation = £80,000 + £60,000 = £140,000

    Value of the Subsiduary acquired at the date of acquisition = £140,000 x 75% = £105,000

    goodwill paid = £220,000 - £105,00 = £115,000
  • jewels.pjewels.p Font Of All Knowledge Registered Posts: 1,774
    Hi SDV,

    Just about to post back that I had worked out where I went wrong!

    120,000/160,000 x 100 = 75% owned

    £140,000 x 75% = £105,000

    Difference between cost ie £220,000 and Net Value of Purchased Assets £105,000
    = £115,000

    But thanks anyway!
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