Jacob Ltd acquired 60% of Carlos Ltd’s 500,000 R1 equity shares on 1st January 2023 for a consideration of R5 cBrooklyn per share. At the date of acquisition, net assets and liabilities in Carlos Ltd were valued at R1,600,000 and the fair value of the non-controlling interest was R800,000.
Required:
• Determine the acquisition date.
• Calculate goodwill or gain on bargain purchase if any using Proportionate of Net Assets Method
• Calculate goodwill or gain on bargain purchase if any using Fair Value Method
To determine the acquisition date, we would need more information. The problem statement does not provide any details about when the acquisition was made.
To calculate the goodwill or gain on bargain purchase, we can use the Proportionate of Net Assets Method. This method calculates the difference between the consideration paid and the proportionate value of the net assets acquired.
1. Calculation using the Proportionate of Net Assets Method:
Consideration paid for 60% of Carlos Ltd's equity shares = 60% x 500,000 shares x R5 per share = R1,500,000
Proportionate value of the net assets acquired = 60% x R1,600,000 = R960,000
Goodwill or gain on bargain purchase = Consideration paid - Proportionate value of net assets acquired
= R1,500,000 - R960,000
= R540,000 (Goodwill)
2. Calculation using the Fair Value Method:
Consideration paid for 60% of Carlos Ltd's equity shares = R1,500,000 (as calculated above)
Fair value of non-controlling interest = R800,000
Fair value of net identifiable assets acquired = Consideration paid - Fair value of non-controlling interest
= R1,500,000 - R800,000
= R700,000
Goodwill or gain on bargain purchase = Consideration paid - Fair value of net identifiable assets acquired
= R1,500,000 - R700,000
= R800,000 (Goodwill)