Page 232 - FR Integrated Workbook 2018-19

Chapter 17

Example 4

Consideration

P acquired 60% of S's 5,000 $1 shares on 1 July 20X7, and paid $5,000 in
cash. P also issued 2 $1 shares for every 5 acquired in S and agreed to pay a
further $2,000 in 3 years' time. The market value of P’s shares at 1 July 20X7
was $1.80. P has only recorded the cash paid in respect of the investment in
S. Current interest rates are 6%.

Required:

What is the fair value of consideration payable by P?

Solution

$
Cash 5,000
2
Share exchange (60% × 5,000 × / 5 x $1.80) 2,160
3
1
Deferred payment ($2,000 × / 1.06 ) 1,679
————
Total consideration $8,839
————

Illustrations and further practice

You can now attempt TYU question 3 from Chapter 17.

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