The following acquisition analysis relates to a non-sequential acquisition, at the time that Ginger Ltd acquires a controlling interest (acquiring 60%) in Posh Ltd. Posh Ltd had previously acquitted 75% of Scary Ltd.

What are the figures represented by (a) and (b) in the table above?

Question

The following acquisition analysis relates to a non-sequential acquisition, at the time that Ginger Ltd acquires a controlling interest (acquiring 60%) in Posh Ltd. Posh Ltd had previously acquitted 75% of Scary Ltd.

What are the figures represented by (a) and (b) in the table above?

Quizplus · Accepted Answer

(a) is calculated as follows: 
Posh Ltd's 75% acquisition of Scary Ltd = 75% x $240,000 = $180,000 
Ginger Ltd's acquisition of 60% of Posh Ltd = 60% x (100% - 75%) x $240,000 = $72,000 
Total consideration paid for Scary Ltd = $180,000 + $72,000 = $252,000 
(b) is calculated as follows: 
Posh Ltd's goodwill on acquisition of Scary Ltd = $168,000 ($180,000 - $12,000) 
Ginger Ltd's share of goodwill = 60% x $168,000 = $100,800 
Posh Ltd's share of goodwill = $168,000 - $100,800 = $67,200 
Ginger Ltd's cost of investment in Posh Ltd = cost of acquisition + share of goodwill = $72,000 + $100,800 = $172,800 
Impairment loss = $172,800 - $48,000 = $124,800 (Note: impairment loss is calculated against Ginger Ltd's investment cost of $172,800, not the fair value of the investment) 
Therefore, (a) = $168,000 and (b) = $74,400.

The Following Acquisition Analysis Relates to a Non-Sequential Acquisition, at the Time