Help please DFS
jewels.p
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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?
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?
0
Comments

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 = £115,0000 
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!0
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