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Help... consolidated financial statements question

PaisleyPaisley Feels At HomeRegistered Posts: 93
Wyvern plc invested £260,000 in 150,000 ordinary shares of £1 each in Sidbury Ltd. At the date of acquisition the equity of Sidbury Ltd comprised of £200,000 in share capital and £120,000 in retained earnings.

What is the value of goodwill at the date of acquisition?


I have the answer and it looks straight forward, but I'm struggling to get to it. Any help would be appreciated.

Thanks in advance

Comments

  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Hi Paisley

    The first thing you need to work out is how much of the subsidiary does the parent own. W purchased 150,000 shares in S when S's share capital was £200, so £150 / £200 x 100 = a 75% holding in S. We can now work out the goodwill in S as follows:

    Cost of investment (by W in S) = £260k

    For £260k W has bought 75% of the net assets of S, therefore:

    Share capital : £200
    Retained earnings: £120
    Total net assets: £320 x 75% = £240

    Cost of investment = £260 less net assets acquired of £240k = Goodwill of £20k.

    Hope that helps.

    Regards
    Steve
  • PaisleyPaisley Feels At Home Registered Posts: 93
    Hi Steve

    Thanks for your fast response. Now it makes more sense!
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