CALCULATE COST OF ACQUISITION AND GOODWILL

Case-1
On 1October 2008, Hedra acquired 72 million shares out of 100 million shares in Salvador for an
immediate cash payment of Rs.195 million. Hedra agreed to pay further consideration on
30September 2009 of Rs.49 million if the post acquisition profits of Salvador exceeded an agreed
figure at that date. The fair value of contingent consideration is Rs. 40 million at the date of
acquisition. The fair value of net assets except certain debtors to be received two years after the
date of acquisition is Rs. 200 million. The debtors appearing in the books are Rs. 2 million. The
effective discount rate is 8%. The fair value of NCI at the date of acquisition is Rs. 65 million.
Calculate cost of investment and goodwill?
Case-2
Hydrate is a public company operating in the industrial chemical sector. In order to achieve
economies of scale, it has been advised to enter into business combinations with compatible
partner companies. As a first step in this strategy Hydrate acquired all of the ordinary share
capital of Sulphate by way of a share exchange on 1April 2008. Hydrate issued five of its own
shares for every four shares in Sulphate. The market value of Hydrates shares on 1April 2008 was
Rs.6 each. The issued shares of Sulphate are 20 million. The book value of net asset except
property, plant and equipment is Rs. 60 million. The fair value of property, plant and equipment is
Rs.10 million higher than its book value of Rs. 40 million.
Calculate cost of investment and goodwill?
Case-3
Highmoor, a public listed company, acquired 80% of Slowmoors ordinary shares on 1 October
2007. Highmoor paid an immediate Rs.2 per share in cash and agreed to pay a further Rs.1.20
per share after two years of its acquisition. The issued shares of Slowmoor are 50 million of Re. 1
each. The fair value of net assets of Slowmoor is Rs. 90 million except the following provision
which has not been recognized in the books of Slowmoor. The fair value of NCI is Rs. 30 million at
the date of acquisition.
Slowmoor has to make a payment of Rs. 15 million to its employees if Highmoor acquired
Slowmoor in a period of two years in equal installments. The effective discount rate is 8% p.a.
Calculate cost of investment and goodwill?
Case-4
Holdrite purchased 75% of the issued share capital of Staybrite on 1April 2008. Details of the
purchase consideration given at the date of purchase are:
A share exchange of 2 shares in Holdrite for every 3 shares in Staybrite plus an issue to the
shareholders of Staybrite 8% loan notes redeemable at par on 31 March, 2010 on the basis of
Rs.100 loan note for every 250 shares held in Staybrite. The market value of Holdrite share was Rs.
3. The issued shares of Staybrite are 75 million of Re. 1 each. The fair value of net assets of Staybrit
is Rs. 140 million except a license which has not been recognized by Staybrite, the market value
of such a license is Rs. 20 million. Holdrite has a policy of measuring NCI at proportionate share of
net assets at the date of acquisition.
Calculate cost of investment and goodwill?
Case-5
Hapsburg, a public listed company, acquired the following investments:
On 1 April 2008, 24 million out of 30 million shares in Sundial. This was by way of an immediate
share exchange of two shares in Hapsburg for every three shares in Sundial plus a cash payment
of Re.1 per Sundial share payable on 1 April 2010. The market price of Hapsburgs shares on 1
April 2008 was Rs.2 each. The effective discount rate is 8%.
The net assets of Sundial before any fair value adjustment are Rs. 12 million. The fair value
adjustment will increase the value of non-current assets by Rs. 4 million and decrease the value
of current asset by Rs. 1 million. Sundial has to implement restructuring plan if Hapsburg acquire

Sundial. The cost of restructuring is estimated to be Rs. 5 million. Hapsburg has the policy of
measuring NCI at proportionate share of net assets at the date of acquisition.
Calculate cost of investment and goodwill?
Case-6
Highveldt, a public listed company, acquired 75% of Samsons ordinary shares on 1April 2008.
Highveldt paid an immediate Rs.350 per share in cash and agreed to pay a further amount of
Rs.108 million on 1 April 2009. Highveldts cost of capital is 8% per annum. The issued number of
shares of Samson is 200 million. The fair value of net assets at the date of acquisition except
property, plant and equipment is Rs.500 million. The fair value of property, plant and equipment
was not available and a provisional value of Rs. 200 million was taken. But on 1 September 2008
the revaluation of property, plant and equipment was complete which confirmed that the fair
value on the date of acquisition should have been Rs. 180 million. The accounting year end is
June 30. The rate of depreciation is 10% of value at the end of the year. The market value per
share of Samson on the date of acquisition is Rs. 3 per share.
Calculate cost of investment and goodwill?
Case-7
M/S ABC Company acquired 80% stake in M/S SBS on June 30, 20X4. The issued number of shares
of M/S SBS was 1,000,000. M/S ABC Company discharged the purchase consideration by issuing
its own shares one for each two in M/S SBS. The market value of ABC was Rs. 2 on acquisition
date. M/S ABC also paid Rs. 1,000 to its legal advisor for completing the acquisition deal. M/S
ABC also agreed to issue one extra share each to the said shareholders if the market price of
ABC shares falls below Rs. 1.5 within two years of the acquisition date. In the year 20X5 M/S ABC
issued further shares as per agreement as the market value has fallen below Rs. 1.5. The market
value of ABC shares was Rs. 1.20 at the time when additional shares were issued, however the
fair value of contingent consideration at the date of acquisition was Rs. 0.75 per share.
Calculate cost of acquisition only.
Case-8
M/S ABC Company acquired 80% stake in M/S SBS on June 30, 20X4. The issued number of
shares of M/S SBS was 1,000,000 divided in to 1000,000 ordinary shares of Re. 1 each. M/S ABC
Company discharged the purchase consideration by issuing 5% six year listed debt securities of
Rs. 100 each for every 50 shares in SBS. The market value of ABC debt instruments was Rs. 102 on
acquisition date. M/S ABC incurred Rs. 10,000 for listing of newly issued debt securities. M/S ABC
also agreed to pay Rs. 2 to each shareholder if the market value of debt instrument falls below
Rs. 95. In the year 20X5 M/S ABC paid Rs. 2 to each shareholder as the market value has fallen
below Rs. 95, however, the fair value at the date of acquisition was Rs. 1.25 for each share
purchased.
Calculate cost of acquisition only.
Case-9
M/S ABC acquired 1,000,000 ordinary shares of M/S SSS out of total 1,200,000 shares. M/S ABC
issued its one share against each acquired in M/S SSS and Rs. 2 for each share after two years of
the acquisition date. The market value of ABC shares at the date of acquisition is Rs. 1.20. The
effective discount rate of ABC is 8%.
Calculate cost of acquisition only.
Case-10
An entity prepares its financial statements for annual periods ending on 31 December. The entity
was the acquirer in a business combination on 30 September 20X1. As part of initial accounting
for that combination, the entity recognized goodwill of Rs. 100,000. The carrying amount of
goodwill at 31 December 20X1 was Rs. 100,000.
During 20X2, the entity becomes aware of an error relating the amount initially allocated to
property, plant and equipment acquired in a business combination.

i)

The value of property, plant and equipment should have been Rs. 20,000 more than the
value previously allocated to property, plant and equipment with remaining useful life of
four years.
ii)
The value of property, plant and equipment should have been Rs. 20,000 less than the
value previously allocated to property, plant and equipment with remaining useful life of
four years. While additional goodwill of Rs. 17,000 only on December 31, 20X1.
Calculate the effect of each of above errors independently on goodwill and depreciation?
Case -11
X Limited franchises right to Y Limited for use of its brand on June 30, 20X6 in the northern area of
the Country. Two years latter X acquired whole of share capital of Y by paying Rs. 100,000. Y
business has brand (Fair value Rs.20,000) and other net assets having fair value of Rs.60,000. The
franchise right contract terms are favorable to X as compared to market by Rs. 5.000.
Calculate Cost of investment and goodwill at the date of acquisition?
Case -12
X Limited acquired Y Limited on June 30, 2008 for Rs. 150,000 and the net assets of Y at that date
were Rs.200,000, the fair value of non-controlling interest at that date was Rs.42,000.
Calculate Goodwill and discuss appropriate treatment.
Case-13
X purchases components for consumption in its production process from Y under 5 year supply
contract at fixed rate. Currently the fixed rates are higher as compare to market rates. X can
terminate the contract by paying a penalty of Rs. 6 million with three years remaining. X pays Rs.
50 million to acquired Y, which is the fair value of Y. Included in the fair value of Y is Rs. 8 million
relating to supply contract with X. This Rs. 8 million includes Rs. 3 million for customer list and
selling effort at market price and Rs. 5 million relating to contract that is unfavorable to X. Y has
not recognized any asset relating to this contract.
Calculate the cost of investment?