AG218

SEMESTER 2 WEEK 8 TUTORIAL

1. Why is it necessary to revalue a company’s assets before an acquisition?

2. 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.

3. 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.

4. Angus Ltd. acquires Crieff Ltd. on 1 April 20X7 for £14,000,000 cash. At the point of
acquisition Crieff had retained earnings of £8,500,000. Below are the statements of
financial position of Angus and Crieff as at 31 March 20X8.

The carrying amount of Crieff’s assets at acquisition is considered to be equal to their

fair value with the exception of PPE; where items of PPE with a remaining useful life
of 5 years are considered to be worth £500,000 more than their carrying value.

£’000 Angus Crieff

Property plant and equipment 19,000 7,000

Investment in Crieff 14,000 -
Current assets 9,000 5,000

TOTAL ASSETS 42,000 12,000

Share capital 5,000 2,000

Retained earnings 33,000 9,000
Current liabilities 4,000 1,000

TOTAL EQUITY + LIABILITIES 42,000 12,000

 Prepare the group statement of financial position of the Angus group as at 31 March
20X8.

5. Outline some reasons why goodwill may be considered to be impaired.

6. 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.

7. Leopard Ltd. acquires Lion Ltd. on 1 July 20X8 for £15,000,000 cash. At the point of
acquisition Lion had retained earnings of £7,000,000. Below are the statements of
financial position of Leopard and Lion as at 30 June 20X9.

The carrying amount of Lion’s assets at acquisition is considered to be equal to their

fair value with the exception of:

PPE: where items of PPE with a remaining useful life of 5 years are considered to be
worth £800,000 more than their carrying value.
Inventories: Where inventories are considered to be worth £200,000 more than their
carrying value. All the inventories at acquisition had been sold by the year end.

At the year-end goodwill was considered to be 25% impaired.

£’000 Leopard Lion

Property plant and equipment 17,000 6,000

Investment in Lion 15,000 -
Inventories 4,000 1,000
Other current assets 7,000 4,000

TOTAL ASSETS 43,000 11,000

Share capital 6,000 2,000

Retained earnings 34,000 7,500
Current liabilities 3,000 1,500

TOTAL EQUITY + LIABILITIES 43,000 11,000

Prepare the group statement of financial position of the Leopard group as at 30 June
20X9.