question on INVESTMENT and arised GOODWILL

[salloo70]

PLZZ friends reply to the question as i am confused
THANX
A Ltd. (at 31 Dec2001)

Investment in B Ltd ( 10,000 shares) bought for Rs. 160,000 (now the market value of share is Rs.20 per share)



B Ltd (at 31 Dec 2001 )

Ordinary share capital (100,000 shares of 10 each) Rs. 1,000,000

Accumulated Profit Rs. 30,000


I want to know
1. what amount should we write in Balance Sheet of A in Investment Account

2. how much would be the Goodwill and why (because the problem I tried to solve have calculation as to Good will is => actual price for buying less (par value of invested shares + same proportion of accumulated profit) = Goodwill

3. the third problem is whether we record investment on market value or the buying price

[Ice_Blue]

if the shares are held for trading then they should appear on the Balance sheet of A at Fair Value i.e Rs.200,000 ,

otherwise they should appear at their cost i.e Rs.160,000.

Read IAS 39 for further clarification

Ice Blue

[hanifasif]

The issue of goodwill arises in case of subsidiaries and/or insvestments in associates. Since the holding is merely 10% so it will most likely be treated in either of two ways

1- as financial assets held for trading. Fair value accouting will be used and changes in fair value will be reflected in net profit and loss

2-as available for sale financial assets. Fair value. Enterprise has a one-time, enterprise-wide choice of reporting changes in fair value

(a) in net profit or loss or
(b) in equity until the asset is sold or otherwise disposed of, at which time the cumulative gain or loss is reported in net profit or loss.

(Souruce accountancy.com IASs summaries)

[salloo70]

thanx hanif

yeah its the case of subsidiaries......but lets change the share of investments
take it as the investment done by A Ltd is 75% of the share capital of B Ltd .

then plz explain the treatment of recording goodwillll

[hanifasif]

Lets assume the acquisition is made on Dec 31, 2001. (no other date is given in the question)

now using simple formula.

Goodwill = (what you got at fair market price at the point of acquisition) - (what you paid)

Goodwill = (200,000 x 75000/10000 + 75% of 30,000) - (160,000 x 75000/10000)

Goodwill = 1,500,000 + 22,500 - 1,200,000
= 322,500

Now this goodwill will be recorded as intangible asset and needs to be amortized , usually not more than 5 to 7 years.

anybody, correct me if i am wrong.

Regards
Asif