Cash paid on 1 January 2023 Professional fees Bank fees and charges associated with the acquisition 124,800 850 1,000 In addition to the costs shown above, LW issued 15,000,000 25p ordinary shares to the shareholders of JL Ltd as part of the consideration. As at 1 January 2023 the market value of LW shares were £1.50 each and JL Ltd shares were valued at £1.20 each. LW will also pay a further £5,000,000 in cash on 1 January 2024. An appropriate discount rate is 7%. A further 2,000,000 shares will be issued by LW to the shareholders of JL Ltd on 1 January 2024 if profits increase by 5% over the next 12 months. The directors believe there is a 60% likelihood of the contingent consideration being achieved and that the market value of LW shares are expected to rise to £1.80 each. A due diligence report indicates that JL Ltd net assets at the acquisition date were valued at £67,300,000. The report gave further information on the fair value of the net assets of JL Ltd: 1. The carrying value of property, plant and equipment (PPE) was £31,800,000 at the date of acquisition, but a professional valuation showed the PPE should be valued at fair value of £45,200,000. 2. JL Ltd's internally generated brand was not shown in its own accounts. During the due diligence process, LW valued this to be worth £20,000,000. The report had also made recommendations for the restructuring of JL Ltd post acquisition at an estimated reorganisation cost of £700,000. The fair value of the non-controlling interest was £450,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Transcribed Image Text:(a) On 1 January 2023, the LW Group purchased 90% of the 3.75m £1 equity share capital of JL Ltd. The costs incurred by LW Group at the date of acquisition were as follows: Cash paid on 1 January 2023 Professional fees Bank fees and charges associated with the acquisition £'000 124,800 850 1,000 In addition to the costs shown above, LW issued 15,000,000 25p ordinary shares to the shareholders of JL Ltd as part of the consideration. As at 1 January 2023 the market value of LW shares were £1.50 each and JL Ltd shares were valued at £1.20 each. LW will also pay a further £5,000,000 in cash on 1 January 2024. An appropriate discount rate is 7%. A further 2,000,000 shares will be issued by LW to the shareholders of JL Ltd on 1 January 2024 if profits increase by 5% over the next 12 months. The directors believe there is a 60% likelihood of the contingent consideration being achieved and that the market value of LW shares are expected to rise to £1.80 each. A due diligence report indicates that JL Ltd net assets at the acquisition date were valued at £67,300,000. The report gave further information on the fair value of the net assets of JL Ltd: 1. The carrying value of property, plant and equipment (PPE) was £31,800,000 at the date of acquisition, but a professional valuation showed the PPE should be valued at fair value of £45,200,000. 2. JL Ltd's internally generated brand was not shown in its own accounts. During the due diligence process, LW valued this to be worth £20,000,000. The report had also made recommendations for the restructuring of JL Ltd post acquisition at an estimated reorganisation cost of £700,000. The fair value of the non-controlling interest was £450,000. Required: Explain and calculate the value of goodwill to be recognised at the date of acquisition of 1 January 2023 of JL Ltd.

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