Homework Answers
| S.No. | Acquisition Cost | in $ | Notes |
| 1 | New stock 10,000 shares issued to former shareholders @ fair value $40 per share | 400000 | |
| 2 | Cash paid to former shareholders 25000 shares @ $5 per share | 125000 | |
| 3 | Registration fee for stock | 2000 | As per FAS 141, after Dec. 15,2008, acquisition-related costs except equity and debt financing fee, are not to be included in cost. Instead, to be treated as expenses against services received. Here, it is equity financing fee. |
| 4 | Legal and consulting fee | - | As per FAS 141, after Dec. 15,2008, acquisition-related costs except equity and debt financing fee, are not to be included in cost. Instead, to be treated as expenses against services received |
| 5 | Severance pay to former employees of acquired co. | 5000 | |
| 6 | Vested stock options to former employee fair value $15000 | 15000 | |
| 7 | Unvested stock options fair value $ 6000 | 6000 | Contingent expenses are included at present fair value of contingent cost |
| Total acquisition cost | 553000 |
Controlling interest = 65% (as given in ques.)
Therefore, non-controlling interest = 100% - 65% = 35% valued at $ 2,75,000
Fair value of non-controlling interest = $ 2,75,000
Fair value of entire acquired entity = $ 275000 * 100 /35 = $ 7,85,714.29
Therefore, fair value of tangible assets = $ 7,85,714.29
However, intangible asset (in-process R&D of fair value $ 75,000 is to be accounted for since not included in above fair value)
Therefore, fair value of the entire entity = $ 785714.29 + $ 75000 = $ 8,60,714.29
Value of controlling interest in the Co. 65% = $ 8,60,714.29 * 65 / 100 = $ 5,59,464.29
Total acquisition cost = $ 5,53,000
Goodwill = Total purchase price - Fair value of controlling interest in entity purchased
Therefore, negative goodwill or discount on acquisition = $ 5,53,000 - $ 5,59,464.29
= - $ 6,464.29
Allocation to controlling interest = - $ 6,464.29 * 65% = - $ 4,201.79
Allocation to non-controlling interest = - $ 6,464.29 * 35% = - $ 2,262.50
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