Semester 2 Week 8 Tutorial 7 Flashcards
Why is it necessary to revalue a company’s assets before an acquisition?
It is necessary to revalue a company’s assets before revaluation in order that the consolidation does reflect a true and fair value of the company’s position. As both the acquiring company and the company being acquired will investigate the true value of a company’s assets any price paid will be based on this. In order to ensure that the goodwill and the other figures on acquisition are correctly reflected it is necessary to revalue the assets before the consolidation.
Austin Plc. has acquired Dudley Ltd. for £8,000,000. At the point of acquisition Dudley had share capital of £1,000,000 and retained earnings of £5,000,000. All the assets at acquisition were held at their carrying value with the exception of inventories which are considered to be worth £200,000 more than their carrying amount.
Calculate the goodwill at acquisition.
Maclean Ltd. has acquired Harper Ltd. for £9,000,000. At the point of acquisition Harper had share capital of £2,000,000, retained earnings of £6,000,000 and PPE with a value of £4,000,000. All the assets at acquisition were held at their carrying value with the exception of PPE which are considered to be worth £800,000 more than their carrying amount. These items of PPE have a useful life of 10 years.
a. Calculate the goodwill at acquisition.
b. Calculate the value of PPE at the end of the year.
Prepare the group statement of financial position of the Angus group as at 31 March 20X8.
Outline some reasons why goodwill may be considered to be impaired.
Goodwill can be impaired for a number of reasons such as reputational damage to the company, damage to brand, changes in fashion or public perception. Anything essentially which would damage the intangible reputation of the business.
Leeds Ltd. has acquired Bradford Ltd. for £12,000,000. At the point of acquisition Bradford had share capital of £2,000,000 and retained earnings of £8,000,000. All the assets at acquisition were held at their carrying value with the exception of inventory which is considered to be worth £500,000 more than their carrying amount. At the year-end goodwill is considered to be 15% impaired.
a. Calculate the goodwill at acquisition.
b. Calculate the value of goodwill at the end of the year.
Prepare the group statement of financial position of the Leopard group as at 30 June 20X9.
