The following information relates to questions
On 1 January 20X3, Claudia Ltd, an Australian company, acquired 80% of the shares of Saskia Ltd, a New Zealand company, for A$2 498 000. At that date the share capital of Saskia was NZ$2 million and the retained earnings were NZ$1 440 000.

All the assets and liabilities of Saskia were recorded at fair value except for land, for which the fair value was NZ$200 000 higher than the carrying amount and equipment, for which the fair value was NZ$80 000 higher than the carrying amount. The undervalued equipment had a further 4-year life. The tax rate in New Zealand is 25%.

Exchange rates are as follows:
$\begin{array}{ll}
1 \text { January 20X3 } & \mathrm{A} \$ 1.00=\mathrm{NZ} \$ 1.20 \
31 \text { December 20X3 } & \mathrm{A} \$ 1.00=\mathrm{NZ} \$ 1.40 \
\text { Average for the year } & \mathrm{A} \$ 1.00=\mathrm{NZ} \$ 1.30
\end{array}$
-The goodwill arising on Claudia's acquisition of Saskia is:
A) NZ$77 600;
B) NZ$88 800;
C) A$93 120;
D) A$422 000.

Question

The following information relates to questions 
On 1 January 20X3, Claudia Ltd, an Australian company, acquired 80% of the shares of Saskia Ltd, a New Zealand company, for A$2 498 000.  At that date the share capital of Saskia was NZ$2 million and the retained earnings were NZ$1 440 000.

All the assets and liabilities of Saskia were recorded at fair value except for land, for which the fair value was NZ$200 000 higher than the carrying amount and equipment, for which the fair value was NZ$80 000 higher than the carrying amount. The undervalued equipment had a further 4-year life. The tax rate in New Zealand is 25%.

Exchange rates are as follows:
$\begin{array}{ll}
1 \text { January 20X3 } & \mathrm{A} \$ 1.00=\mathrm{NZ} \$ 1.20 \
31 \text { December 20X3 } & \mathrm{A} \$ 1.00=\mathrm{NZ} \$ 1.40 \
\text { Average for the year } & \mathrm{A} \$ 1.00=\mathrm{NZ} \$ 1.30
\end{array}$
-The goodwill arising on Claudia's acquisition of Saskia is:
A) NZ$77 600;
B) NZ$88 800;
C) A$93 120;
D) A$422 000.

Quizplus · Accepted Answer

The goodwill is calculated as the excess of the purchase price over the fair value of the net assets acquired. The fair value of the net assets is calculated as follows:Share capital                               NZ$2,000,000Retained earnings                        NZ$1,440,000Land                                             NZ$200,000Equipment                                   NZ$80,000                                                  NZ$3,720,000The purchase price is A$2,498,000, which is equivalent to NZ$2,997,600 (A$2,498,000 x 1.20). Therefore, the goodwill is NZ$77,600 (NZ$2,997,600 - NZ$3,720,000).

The Following Information Relates to Questions on 1 January

The Following Information Relates to Questions
on 1 January