Good Day, Please assist with the attached question. I am currently attempting pr

Question

Good Day, Please assist with the attached question. I am currently attempting practice questions in preparation for my finals next week. Kindly assist.

Thank you.

Pinecrest acquired the following investments over the period 2007 to 2009: On January 1, 2007, Pinecrest acquired 80% of the issued share capital of Stratford. The acquisition took the form of a share exchange of three shares in Pinecrest for every five shares in Stratford. The market price of Pinecrest shares at January 1, 2007 was $5 per share. On October 1, 2008, Pinecrest acquired a 40% interest in Albany representing 6 million shares paying $3 per share in cash and issuing Albany shareholders 6% (actual and effective rate) loan notes on the basis of $100 loan note for every 100 shares issued. The summarized income statements for the three companies for the year ended December 31, 2008 is shown below: DETAILS Pinecrest Stratford Albany Revenue Cost of sales Gross profit/loss) 105,000 62,000 50,000 (68,000) (36,500) 61,000) 25,500(11,000) 37,000 Other income Distribution costs Administrative expenses Finance costs Profit/loss) before tax Income tax (expense)/credit (8,700) (2,600) Profit/(loss) for the period 16.000 1 400 (4,000)(2,000) (4,500) (7,500)(7,000) (8,500) (1,200) 24,700 (900) 15,600(24,000) 4,000 13,000(20,000) 16,000 The following information is also relevant:

Explanation / Answer

1)   Calculation of Goodwill arising out of acquisition of Stratford at January 1, 2007

Details Pinecrest Stratford 000 000 Equity shares of $1 each 20000 15000 Retained Earnings on Oct. 1, 2008 18000 35000 (less)profit at the end of year 2007 -16000 -13000 Retained Earnings on Jan 1, 2007 2000 22000 Book value per share on jan 1, 2007 1.1 2.47 Number of share as exchabge in each other 7200 12000 Total Book Value of Share exchange 7920 29600 Market Value of 7200 Shares @ $5 per share 36000 N.A Excess fair value of assets acquired 16000 Cost of acquisiton (a) 36000 Value aquired (b) 45600 Goodwill (a)-(b) -9600

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