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Question 3 Tamarama Ltd acquires $100% of Bronte Ltd on 1 July 2013. Tamarama Ltd pays...

Question 3

Tamarama Ltd acquires $100% of Bronte Ltd on 1 July 2013. Tamarama Ltd pays the shareholders of Bronte Ltd the following consideration:

Cash:   $70000

Plant and equipment: fair value $250000; carrying amount in the books of Tamarama Ltd $17000

Land: fair value $300000; carrying amount in the books of Tamarama Ltd $200000

There are also legal fees of $35000 involved in acquiring Bronte Ltd.

On 1 July 2013 Bronte Ltd’s statement of financial position shows total assets of $700000 and liabilities of $300000. The fair value of the assets is $800000.

Required:

  1. Has any goodwill been acquired and, if so, how much?
  2. Can Tamarama Ltd revalue the goodwill upwards in a subsequent period?

Solutions

Expert Solution

Answer to Question (a.)
Purchase Consideration
Paid by Tamarama Ltd To the shareholders of Bronte Ltd.
$
Cash 70000
Plant & Equipment (Fair Value) 250000
Land (Fair Value) 300000
Total Purchase Consideration 620000
Net Asset value of Bronte Ltd as on 1st July 2013:
Fair Value of Assets taken over 800000
Less: Value of Liabilities taken over 300000
Net Asset value (NAV) 500000
Since NAV is 500000 and Total value of Purchase consideration is 620000 , there is goodwill
Goodwill will be    (620000-500000) 120000
Add
Legal fees paid by Tamarama Ltd for Acquring Bronte Ltd also will form part of Goodwill 35000
Total value of Goodwill will be 155000
Answer to Question (b.)
Treatment of Goodwill arising out of an acquisition/Amalgamation:
Goodwill acquired during a takeover scheme , normally will not be revalued. It is carried in the Balance Sheet as an Intangible Asset . It is not amortized over a period of time also , but will test for its impairment periodically , say on every Balance Sheet date.
Therefore in this case Tamarama Ltd should not upward revalue the goodwill arising on account of acquisition of Bronte Ltd. And need to test impairment periodically.

ekkarill92 answered 1 year ago
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