Xin Limited paid €12 000 for 75% of Yan Limited. At the date of acquisition Yan Limited had equity as follows:
$\bullet$ Share capital of €10 000
$\bullet$ Retained earnings of €5000
$\bullet$ Other reserves of €3000
All of Yan Limited's assets and liabilities were recorded at fair value. The fair value of identifiable net assets acquired by Xin Limited amounted to:
A) €9750
B) €12 000
C) €13 500
D) €18 000

Question

Xin Limited paid €12 000 for 75% of Yan Limited. At the date of acquisition Yan Limited had equity as follows: 
$\bullet$ Share capital of €10 000
$\bullet$ Retained earnings of €5000
$\bullet$ Other reserves of €3000
All of Yan Limited's assets and liabilities were recorded at fair value. The fair value of identifiable net assets acquired by Xin Limited amounted to:
A) €9750
B) €12 000
C) €13 500
D) €18 000

Quizplus · Accepted Answer

To calculate the fair value of the identifiable net assets acquired, we need to do the following:

Share capital of €10,000 + retained earnings of €5,000 + other reserves of €3,000 = total equity of €18,000
Xin Limited purchased 75% of Yan Limited for €12,000, which means the fair value of Yan Limited as a whole was €12,000/0.75 = €16,000.
The identifiable net assets acquired by Xin Limited is therefore 75% of €18,000 = €13,500.

Therefore, the correct answer is C, €13,500.

Xin Limited Paid €12 000 for 75% of Yan Limited ∙\bullet∙

Xin Limited Paid €12 000 for 75% of Yan Limited $\bullet$