Westfield Exploration Inc.(WEI) is a public company listed on the UK Stock Exchange. The company was a mineral explorer that has subsequently become dormant with only directors and an administrative staff remaining. There was an opportunity for the company to move into the IT industry following the slowdown in the mining industry. Dream IT Company is a London based IT company. WE Inc. has entered into a share sale agreements to acquire 100% of Dream IT.
The following key terms of the acquisition was announced to the market on September 13, 2014. At this time WE shares price is $0.10.
On 15 October 2014, the shareholders of WEI approved the various transactions in the acquisition of Dream IT. The share price on the date of approval was $0.18.
On 20 October 2014, consideration shares were issued to the existing shareholders of Dream IT at $0.20 per share and shares were issued to general public as part of capital raising also at $0.20.
The following is the statements of financial position of WEI and Dream IT at the date of acquisition.
WEI |
Dream IT |
|
Current Asset |
||
Cash and Bank balances |
700,000 |
1,000,000 |
Trade and other receivables |
60,000 |
460,000 |
Total current assets |
760,000 |
1,460,000 |
Non-current asset |
||
Property, plant & Equipment |
50,000 |
500,000 |
Intangible asset |
0 |
2,000,000 |
Total non-current assets |
50,000 |
2,500,000 |
Total assets |
810,000 |
3,960,000 |
Current liabilities |
||
Trade and other payable |
200,000 |
350,000 |
Total current liabilities |
200,000 |
350,000 |
Non current liabilities |
||
Borrowings |
100,000 |
1,000,000 |
Total Liabilities |
300,000 |
1,350,000 |
Equity |
||
Issued capital (WEI:40 million shares) |
72,000,000 |
2,000,000 |
Retained Earnings |
(71,490,000) |
610,000 |
Total Equity |
510,000 |
2,610,000 |
1. What type of business combination occurred in case study 1?
2. Non-controlling interest hold ____________ % of the consolidated stock.
3. The consideration share that was issued on October 20,2014 is called ___________.
1. The type of business combination is Circular combination. When two or more business units dealing in different products join hands is called circular combination. For instance, combination of sugar mill with cement factory. This type of combination is also known as mixed combination. The main advantage of this this type of combination is to secure the benefits of administrative integration through common management.
2. Non controlling interest hold 13.04% of the concolidated stock. The general public which is being issued 15,000,000 shares will hold the non controlling interest in the company. (15,000,000/115,000,000*100 = 13.04%)
3. The consideration share that was issued on OCtober 20, 2014 is called as Target shares i.e the shares issued to the shareholders of Acquired company.
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