Question

Please help me to solve this exercise

Statements of Financial Position Shark LtdSeal Ltd Elimination Entries Group Dr Cr Non-current assets Plant Land Investment in Seal Ltd. Current assets Cash Accounts receivable Goodwill Total Assets 400 280 100 20 75 25 880 330 Shareholders' equity Share capital Retained earnings Non-current liabilities Loans Current liabilities Accounts payable 500 100 100 140 150 75 15 130 880 330 Total Liabilities and Equity

The Shark ltd acquired all the issued capital of Seal ltd for a cash payment of $300 on June 30, 2018. Subidiary Plant assets have a book value of a $280 but have a fair value of $290. Fill the followng table with the missing items. Determind the goodwill arsing on consolidation (demonstration of the computation required)

Answer 1

As on the date of investment, the cost of investment and the equity in the subsidiary needs to be calculated.
Once the above is calculated, goodwill or capital reserve is calculated as under:
Goodwill = Cost of Investment - Parent’s share in the equity of the subsidiary on date of investment
The parent’s portion of equity in a subsidiary, at the date on which investment is made, is determined on the basis of information contained in the financial statements of the subsidiary as on the date of investment.

Shark Ltd. acquires all the issued capital(100%) of Seal Ltd. for a cash payment of $300 (cost of investment). Revaluation Gain is $10 ($290-$280)

	$
100% of Equity Share Capital of Seal Ltd. $100	100
100% of Accumulated Reserves $140	140
100% of Revaluation gain $10	10
Total	250

Goodwill = $300- $250= $50