Help please DFS

jewels.p

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?

sdv

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.p

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!