The summarised income statements for the three companies for the year ended 30 June 2020 are:...

 

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The summarised income statements for the three companies for the year ended 30 June 2020 are: Spencer Alexander Rs 000 60,000 Parker Rs 000 Rs 000 Revenue 112,500 58,500 Cost of sales (70,500) (38,250) (45,000) 15,000 Gross profit Distribution costs Administrative expenses 42,000 20,250 (5,550) (9,375) (2,250) (4,500) (675) (2,625) (4,875) Finance cost (1,500) Nil Profit before tax 25,575 12,825 7,500 Income tax expense (7,800) (2,700) (3,000) Profit for the year 17,775 10,125 4,500 The following information is relevant: 1. On 1 October 2019 Parker purchased 13,500,000 of a total of 18,000,000 equity shares in Spencer. The acquisition was through a share exchange of two shares in Parker for every five shares in Spencer. Both companies have shares with a par value of Rs 1 each. The market price of Parker's shares at 1 October 2019 was Rs 6.50 per share. Parker will also pay in cash on 30 September 2023 (four years after acquisition) Rs 3-50 per acquired share of Spencer. Ignore cost of capital. The reserves of Spencer on 1 July 2019 were Rs 51,750,000. 2. Parker has held an investment of 25% of the equity shares in Alexander for many years. 3. The fair values of the net assets of Spencer at the date of acquisition were equal to their carrying amounts with the exception of land and property. Land and property had fair values of Rs 3,075,000 and Rs 1,800,000 respectively in excess of their carrying amounts. The property had a remaining life of twenty years (straight-line depreciation) at the date of acquisition of Spencer. All depreciation is treated as part of cost of sales. The summarised income statements for the three companies for the year ended 30 June 2020 are: Spencer Alexander Rs 000 60,000 Parker Rs 000 Rs 000 Revenue 112,500 58,500 Cost of sales (70,500) (38,250) (45,000) 15,000 Gross profit Distribution costs Administrative expenses 42,000 20,250 (5,550) (9,375) (2,250) (4,500) (675) (2,625) (4,875) Finance cost (1,500) Nil Profit before tax 25,575 12,825 7,500 Income tax expense (7,800) (2,700) (3,000) Profit for the year 17,775 10,125 4,500 The following information is relevant: 1. On 1 October 2019 Parker purchased 13,500,000 of a total of 18,000,000 equity shares in Spencer. The acquisition was through a share exchange of two shares in Parker for every five shares in Spencer. Both companies have shares with a par value of Rs 1 each. The market price of Parker's shares at 1 October 2019 was Rs 6.50 per share. Parker will also pay in cash on 30 September 2023 (four years after acquisition) Rs 3-50 per acquired share of Spencer. Ignore cost of capital. The reserves of Spencer on 1 July 2019 were Rs 51,750,000. 2. Parker has held an investment of 25% of the equity shares in Alexander for many years. 3. The fair values of the net assets of Spencer at the date of acquisition were equal to their carrying amounts with the exception of land and property. Land and property had fair values of Rs 3,075,000 and Rs 1,800,000 respectively in excess of their carrying amounts. The property had a remaining life of twenty years (straight-line depreciation) at the date of acquisition of Spencer. All depreciation is treated as part of cost of sales.

Answer rating: 100% (QA)

Answer Explanation aCalculation of Goodwill both on date of acquisition and closing date ie 30 june 2020 For calculating Goodwill first we need to kno... View the full answer