Question

Company Limited purchased S Limited for the purchase consideration of:

Cash	$11 per S Ltd’s share
Shares in M Company Limited	20000 shares with market value of $12
Non-current asset	Carrying Value $30000 Fair Value $49000

M Company Limited incurred legal fees of $9000 to complete the acquisition.

S Limited had the following assets and liabilities at the time of purchase:

	Carrying amount ($)	Recoverable amount ($)	Fair value ($)
Assets
Land	454000	488000	504000
Machinery	317000	359000	385000
Inventory	310000	286000	364000
Cash	159000
Liabilities
Loan	386000
Share Capital (92000 shares)	854000

Calculate and enter the amount of goodwill

Answer 1

Solution

Calculation of Purchase Consideration          

Particular	Amount
Cash (11*92000)	1,012,000
+ Shares in M Limited (20,000 * 12)	240,000
+ Non Current Assets (at Fair Value)	49,000
Total Purchase Consideration	1,301,000
+ Legal Fees (as same is directly attributable to acquisition)	9,000
Total Amount Paid	1,310,000

Calculation of Goodwill

Particular	Amount (Fair Value)
Land	504,000
+ Machinery	385,000
+ Inventory	364,000
+ Cash	159,000
- Loan	(386,000)
Net Fair Value of Assets Acquired	1,026,000
Less Amount paid for acquisition	1,310,000
Goodwill	284,000