Hornet plc acquired 60% of the equity share capital of Alton on 1 January 2009 for...

Hornet plc acquired 60% of the equity share capital of Alton on 1 January 2009 for a cash consideration of $ 4.5 M. The fair value of net assets of Alton at this date was $6 and full goodwill method is used. During 2009 until 31 December 2009 Alton made a net income of $2. On 1 January 2010, Hornet acquired an additional 30% of equity of Alton for $ 2M. On 1 January 2010, identifiable net assets of Alton were included in the consolidated statement of financial position at $ 8M.

Use the above to answer the following

Solve the question in details as we took in class and then answer the questions

What is the goodwill recognized on 1 January 2009?

What is the worksheet journal entry to record the effect of the 30% additional purchase of shares on 1 January 2010?

What is the value of goodwill following the purchase of the additional 30% shares on 1 January 2010?

What is the amount of gain or loss recognized following the purchase of the additional 30% shares on 1 January 2010 and why?

Solutions

Expert Solution

(i) As on 1 jan 2009 on Date of Acquision:

JOURNAL ENTRY

Net Assets A/c D. 6M

Goodwill A/c Dr. 0.9M (Balancing Figure)

TO Cash 4.5M ((Purchase Consideration)

TO Non Controlling Intrest 2.4 M (6M*40%)

(Being business acqure 60 % share on 1 Jan 2009)

(ii) Working for further acqured share of 30 %

31st Dec Earned profit of 2M on which calculation of shraring of Profit

Hornet plc = 2M * 60%= 1.2M

Non controlling intrest - 2M * 40%= 0.8M

Total value of NCI on Further acqusition Date= 2.4M+ 0.8M = 3.2

NCI Acqured for 3 M the,

There is a gain on acqusition of 30 % which is transfered to capital reserve on date of acqusition

Total Gain = 3M-3.2M

= 0.2 M gain of acqusition of 30 % share which we transferd to Capital Reserve

Conclusion: On the further acqusition date we will calculate the total share in NCI ( Non controlling Intrest) on which date we compare that with further consideration we paid and there may be goodwill or capital reserve and in given question on acqusition of 30 % share gain of 0.2M which is transfered to capital reserve.

ekkarill92 answered 1 year ago

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