Brother LLC considered the takeover of Hood LLC. Both companies operated in the same industry, but Hood LLC had access to some infrastructure assets that would be useful to the operations of Brother LLC. After due consideration including an in-depth financial analysis of the project, on 1 January 2020, Brother LLC made an offer to the shareholders of Hood LLC: • Brother LLC would pay one fully paid ordinary shares in Brother LLC plus OMR 5 cash for every preference share in Hood LLC, payable at acquisition date. • Brother LLC would pay two fully paid ordinary shares in Brother LLC plus OMR 3 in cash for every ordinary share in Hood LLC. Half the cash is payable at acquisition, and the other half is payable after 1 year. The shareholders of Hood LLC accepted the offer. Of the ordinary shareholders, 80% accepted the offer while of the preference shareholders, 90% accepted the offer. At 30 March 2020, the share capital of Hood LLC consisted of 100 000 fully paid ordinary shares at OMR 3 per share, while the preference share capital consisted of 50 000 5% preference shares issued at OMR 2.6 per share. The contract was agreed to on 1 April 2020. At that date, the fair value of each Brother LLC's share, was OMR 5.40. Brother LLC’s borrowing rate on current debt was 10% p.a. The cost of issuing the ordinary shares in Brother LLC was OMR 1500 for the shares issued to the former Hood LLC preference shareholders and OMR 2400 for the shares issued to the former ordinary shareholders in Hood LLC. Required: Prepare the acquisition analysis of the shares of Hood LLC at 1 April 2020 and the deferred payment on 1 April 2021.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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7. Brother LLC considered the takeover of Hood LLC. Both companies operated in the same industry, but Hood LLC had access to some infrastructure assets that would be useful to the operations of Brother LLC. After due consideration including an in-depth financial analysis of the project, on 1 January 2020, Brother LLC made an offer to the shareholders of Hood LLC: • Brother LLC would pay one fully paid ordinary shares in Brother LLC plus OMR 5 cash for every preference share in Hood LLC, payable at acquisition date. • Brother LLC would pay two fully paid ordinary shares in Brother LLC plus OMR 3 in cash for every ordinary share in Hood LLC. Half the cash is payable at acquisition, and the other half is payable after 1 year. The shareholders of Hood LLC accepted the offer. Of the ordinary shareholders, 80% accepted the offer while of the preference shareholders, 90% accepted the offer. At 30 March 2020, the share capital of Hood LLC consisted of 100 000 fully paid ordinary shares at OMR 3 per share, while the preference share capital consisted of 50 000 5% preference shares issued at OMR 2.6 per share. The contract was agreed to on 1 April 2020. At that date, the fair value of each Brother LLC's share, was OMR 5.40. Brother LLC’s borrowing rate on current debt was 10% p.a. The cost of issuing the ordinary shares in Brother LLC was OMR 1500 for the shares issued to the former Hood LLC preference shareholders and OMR 2400 for the shares issued to the former ordinary shareholders in Hood LLC. Required: Prepare the acquisition analysis of the shares of Hood LLC at 1 April 2020 and the deferred payment on 1 April 2021.

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