Question

pick from the multiple choice

Under the full goodwill method, a control premium is recognised when:

	a.	the parent paid more than the fair value for the shares they acquired.
	b.	the parent paid less than the fair value for the shares they acquired.
	c.	the consideration transferred by the parent is more than the fair value of the identifiable net assets acquired.
	d.	the consideration transferred by the parent is less than the fair value of the identifiable net assets acquired.

Fredericks Limited acquired the identifiable assets and liabilities of Nicole Limited for $134 000. The items acquired, stated at fair value, are: plant $72 000; inventories $40 000; accounts receivable $18 000; patents $10 000; accounts payable $16 000. The difference on acquisition is:

	a.	gain on bargain purchase $10 000.
	b.	gain on bargain purchase $16 000.
	c.	goodwill of $10 000.
	d.	goodwill of $124 000.

Xana Limited paid $110 000 for 60% of the shares in Yama Limited. At the date of acquisition Yama Limited had share capital of $100 000 and retained earnings of $36 000 and all of Yama Limited’s assets and liabilities were recorded at fair value, except for land that was recorded at an amount less than the fair value by $20 000. The company tax rate was 30%. The fair value of identifiable net assets acquired by Xana Limited amounted to:

	a.	$60 000.
	b.	$90 000.
	c.	$110 000.
	d.	$150 000.

Answer 1

Under the full goodwill method, a control premium is recognized when:

Answer : the parent paid more than the fair value for the shares they acquired

Fredericks Limited acquired the identifiable assets and liabilities of Nicole Limited for $134 000. The items acquired, stated at fair value, are: plant $72 000; inventories $40 000; accounts receivable $18 000; patents $10 000; accounts payable $16 000. The difference on acquisition is:

Answer : Goodwill of $10000

Calculation :-

Formula for Goodwill = Purchase price - the fair market value of net assets.

Firstly we have calculate the fair market value of net assets and formula for the same is (Fair value of Assets - Fair value of liability)

Here Fair Value of Assets = (Plant $72000+Inventories $40000+Accounts Receivable $18000+Patents $10000) = $140000.

And liability is Accounts Payable $16000

Fair market value of net assets =($140000-$16000)=$124000

Here purchase price of company is $134000.

Hence Goodwill = $134000-$124000=$10000.

Xana Limited paid $110 000 for 60% of the shares in Yama Limited. At the date of acquisition Yama Limited had share capital of $100 000 and retained earnings of $36 000 and all of Yama Limited’s assets and liabilities were recorded at fair value, except for land that was recorded at an amount less than the fair value by $20 000. The company tax rate was 30%. The fair value of identifiable net assets acquired by Xana Limited amounted to:

Answer Under Net asset method Net assets = Total assets - Total liabilities = Total equity and reserves , Hence here total equity and reserve (there is no reserve, hence assume as zero) is $100000 and Xana Limited purchase 60% share from it . So we can say from above Net Assets =100000X60% = $60000 and Net Assets = fair value of identifiable net assets.

So The fair value of identifiable net assets is $60000.

Hence answer will be a. $60000