05-02-2008, 09:21 PM
Dear Amir,
The question posted by you is basically not a question becoz you have not mentioned the requirement after posting the relevant data.
As far as your calculations of good will are concerned I have certain resrevations on it.
1. The question suggests that the right issue currently made will give premium of 1.5 $ per share while the share's face value is 1 $ each. In your solution you have deemed that 1.5$ is the total proceed. In my view the current buildup of share preminum should be 150,000 $ on issuance of 100,000 shares while the opening balance of this account would be merely 20,000 $.
2. The question speaks about the pre-acquisition reserves at 120,000$ (on 30 June 2002). Basically the term "reserves" includes both share premium as well as accumulated profits. I don't know how you deemed that Accumulated profit of 120,000$ was available pre-acquisition. As pointed out in 1 above, share premium before the current right issue should be 20,000$ and as the reserves include both share premium as well as accumulated profits, out of pre acquisition reserves of 120,000, the amount of 20,000$ should be the share premium and 100,000$ should be the amount of accumulated profit.
In my view taking 120,000$ as share premium and again 120,000 as accumulated profit/reserve is not a correct treatment. Instead only 120,000$ should be taken as pre acquistion reserves i.e. 20000$ share premium and 100000$ as accumulated profits.
For calculating good will, you will deduct 60% of
Share capital at 200,000$
Share permium at 20,000$
Accumulated profits 100,000$; and
Fair value adjustment 30,000$
By taking these figure, you please re-work your question. We will discuss further, if this will not help you.
Further, also give the complete text of the question so that nothing should be misconstrued.
Regards,
KAMRAN
