Hi guys,
This is one of the questions we had during a Mock Exam, whereby I answered B, but according to the teacher it is A. Is someone able to tell me who is right. My logic is:
Acquiring 75% would mean that it is also 75% of the assets and 75% of the liabilities. Taking 75% Equity (€18.000) is €13.500. Since there are no liabilities mentioned, this will mean that Gain on Purchase would be €1.500 and Equity equals Assets in this case, which would also be €13.500.
Question
Xin Limited paid €12 000 for 75% of Yan Limited. At the date of acquisition Yan Limited
had equity as follows:
Share capital €10 000
Retained earnings €5 000
Other reserves €3 000
All of Y Limited’s assets and liabilities were recorded at fair value. The fair value of identifiable net
assets acquired by X Limited amounted to:
A. €18 000
B. €13 500
C. €11 250
D. €9 750.
This is one of the questions we had during a Mock Exam, whereby I answered B, but according to the teacher it is A. Is someone able to tell me who is right. My logic is:
Acquiring 75% would mean that it is also 75% of the assets and 75% of the liabilities. Taking 75% Equity (€18.000) is €13.500. Since there are no liabilities mentioned, this will mean that Gain on Purchase would be €1.500 and Equity equals Assets in this case, which would also be €13.500.
Question
Xin Limited paid €12 000 for 75% of Yan Limited. At the date of acquisition Yan Limited
had equity as follows:
Share capital €10 000
Retained earnings €5 000
Other reserves €3 000
All of Y Limited’s assets and liabilities were recorded at fair value. The fair value of identifiable net
assets acquired by X Limited amounted to:
A. €18 000
B. €13 500
C. €11 250
D. €9 750.