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In June 2019, Uni Ltd
In June 2019, Uni Ltd. made an offer to the shareholders of ABC Ltd. to acquire a controlling interest in the company. Uni Ltd. was prepared to pay HK$ 1.50 cash per share, provided that 70% of the shares could be acquired (enough shares to gain control).
The directors of ABC Ltd. recommended that the offer be accepted. By July 1st 2019, when the offer expired, 85% of the shares had changed hands and were now in the possession of Uni Ltd. The statement of financial position of ABC Ltd. on that date is shown below.
|
ABC Ltd: Statement of financial positions as at July 1st 2019 |
|
|
in HK$ |
|
|
Current assets |
368,000 |
|
Non-current assets |
204,000 |
|
Total assets |
572,000 |
|
Share capital - 400 000 shares |
400,000 |
|
General reserve |
50,000 |
|
Other components of equity |
30,000 |
|
Retained earnings |
40,000 |
|
Current liabilities |
52,000 |
|
Total equity and liabilities |
572,000 |
At July 1st 2019, all the identifiable assets and liabilities of ABC Ltd. were recorded at amounts equal to fair value. Uni Ltd. uses the full goodwill method.
Additional information:
- The share price of the ABC Ltd. is equal to HK$ 1.40 at acquisition date.
- Income tax rate is equal to 30 %.
Required:
Please calculate the goodwill / gain on bargain purchase.
Expert Solution
| Calculation of Goodwill/Gain on bargain purchase of ABC Limited | ||
| Purchase Price of 85% Shares as on 1st July 2019 | = | 400000 Shares * 85% *1.40HK$ |
| = | 476000HK $ | |
| Statement of Net Assets | ||
| Total Assets | = | 572000 HK $ |
| Less: Current Liabilties | = | 52000 HK $ |
| Net Assets of ABC Ltd | = | 520000 HK $ |
| Share of Uni Limited - 85% | = | 442000 HK $ |
| Goodwill on Bargain Purchase as on 1st July 2019 | = | 476000 HK $ - 442000 HK $ |
| = | 34000 HK $ |
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