Curiosity Ltd acquired all the issued share capital of Cat Ltd on 1 July 20X1.Cat Ltd's shareholders equity (all at fair value) at that date was as follows:
$$\begin{array} { l r }
& \mathbf { 0 0 0 } \mathrm { s } \
\text { Paid up capital } &\$4500\
\text { General reserve } & \$ 2000 \
\text { Asset revaluation reserve } & \$ 500 \
\text { General reserve } & \$1000 \
\text { Retained profits } & \$ 1500 \
\end{array}$$
At 1 July 20X1, Curiosity Ltd considered Cat Ltd had unrecorded licenses with a fair value of $1 500 000.What was the cost of acquisition (the fair value of the consideration paid) incurred by Curiosity Ltd, if $500 000 of consolidation goodwill from the business combination was recognised in the consolidated financial statements prepared on 1 July 20X1?
A)$11 500 000
B)$10 500 000
C)$10 000 000
D)$9 000 000

Question

Curiosity Ltd acquired all the issued share capital of Cat Ltd on 1 July 20X1.Cat Ltd's shareholders equity (all at fair value) at that date was as follows:
$$\begin{array} { l r } 
& \mathbf { 0 0 0 } \mathrm { s } \
\text { Paid up capital } &\$4500\
\text { General reserve } & \$ 2000 \
\text { Asset revaluation reserve } & \$ 500 \
\text { General reserve } & \$1000 \
\text { Retained profits } & \$ 1500 \
\end{array}$$
At 1 July 20X1, Curiosity Ltd considered Cat Ltd had unrecorded licenses with a fair value of $1 500 000.What was the cost of acquisition (the fair value of the consideration paid) incurred by Curiosity Ltd, if $500 000 of consolidation goodwill from the business combination was recognised in the consolidated financial statements prepared on 1 July 20X1?
A)$11 500 000
B)$10 500 000
C)$10 000 000
D)$9 000 000

Quizplus · Accepted Answer

The cost of acquisition is the fair value of the consideration paid, which is equal to the fair value of the net assets acquired plus any consolidation goodwill recognised. The fair value of the net assets acquired is equal to the sum of the identifiable net assets of the acquiree, which in this case is $4500 + $2000 + $500 + $1000 + $1500 = $9500, plus the fair value of any unrecorded assets, which in this case is $1500 000. Therefore, the fair value of the net assets acquired is $9500 + $1500 000 = $10 500 000. The cost of acquisition is therefore $10 500 000 + $500 000 = $11 500 000.

Curiosity Ltd Acquired All the Issued Share Capital of Cat