Asked by Angelica Serrano on Jun 11, 2024
Verified
During June 20X5,Cassius Ltd acquired all the issued capital of Cicero Ltd in exchange for 1,000,000 shares with a market value of $10 per share,$5 000 000 cash payable on June 30 20X5 plus a further $6 050 000 payable on June 30 20X7.Assume an interest rate of 10%.A consultation fee of $1 000 000 was paid to an independent firm for their assistance in the acquisition.A special department was set up in Cassius Ltd to oversee the acquisition and the estimated costs of this department that were reliably attributable to the acquisition amounted to $300 000.The cost of acquisition was (rounded to the nearest $1 000) :
A) $21 000 000.
B) $22 350 000.
C) $22 050 000.
D) $21 300 000.
Interest Rate
The percentage at which interest is paid by a borrower for the use of money that they borrow from a lender.
Issued Capital
The total value of a company's shares that have been sold to shareholders and are currently outstanding.
Market Value
The current price at which an asset or service can be bought or sold in the market.
- Understand the components and calculation of the cost of acquisition in business combinations.
- Explain the impact of share issue costs and contingent consideration on business combinations.
Verified Answer
KR
Kiera RiveraJun 14, 2024
Final Answer :
D
Explanation :
The cost of acquisition includes the shares issued ($10,000,000), the cash payable immediately ($5,000,000), the present value of the future cash payment ($6,050,000 discounted at 10% for two years, which is approximately $5,000,000), the consultation fee ($1,000,000), and the costs of the special department ($300,000). Adding these together gives a total of approximately $21,300,000.
Learning Objectives
- Understand the components and calculation of the cost of acquisition in business combinations.
- Explain the impact of share issue costs and contingent consideration on business combinations.