Question

Stairwell Limited acquired 100% of the share capital of Bannister Limited for $475 000. Bannister had total shareholder’s equity of $400 000. The book values of Bannister Limited’s assets were: buildings $200 000, machinery $240 000. The fair values of these assets were: buildings $240 000, machinery $250 000. The tax rate is 30%. The acquisition analysis will determine:

a goodwill of $75 000.

a goodwill of $40 000.

a gain on bargain purchase of $25 000.

a gain on bargain purchase of $75 000

Answer 1

Working Notes: 1
	CALCULATION OF NET MARKET VALUE OF ASSETS AS ON ACQUISITION
	Assets = Liabilities + Shareholder's Equity
	Shareholder's Equity = Assets - Liabilities
	Net Assets = Assets - Liabilities
	So it means total Shareholder's Equity of Bannister limited is equals to Net asstes
	So,
	Net assets of Banniester Limited =	$                 4,00,000
Solution:
	CALCULATION OF THE GOODWILL ON BUSINESS PURCHASE
	Goodwill   / Gain on Acquisition        =	Value of Business Purchase	"-"	Net Assets
	Goodwill   / Gain on Acquisition        =	$                 4,75,000	"-"	$                  4,00,000
	Goodwill   / Gain on Acquisition        =	$                     75,000
Answer = Option 1 = Goodwill of $ 75,000