Calculating GOODWILL on acquisition. WHY THE FORMULA IS NOT WORKING


When I calculate the Goodwill = Consideration (260k) - Equity ( 200k+120k) = the result is negative -60k. while the asnwer is 20k

Please help

Comments

  • KoopaCooperKoopaCooper London, UKPosts: 223MAAT, AATQB
    Out of the £260k they invested into Sidbury, £150k of Wyvern's money went as capital to purchase 150,000 ordinary £1 shares, so their consideration is £110k, not £260k.

    The total retained earnings of the company are £120k. But Wyvern has only bought a 75% share of the company (150,000 shares out of a total of 200,000), so the equity they purchased is £120k x 3/4 = £90k.

    Therefore... consideration (£110k) - retained earnings relevant to Wyvern (£90k) = £20k!

    I hope this helps. :)
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