Calculate Cost of Acquisition

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# Calculate Cost of Acquisition - PowerPoint PPT Presentation

Step 2. Calculate Cost of Acquisition. The Cost of Acquisition consists of 2 components. Do you remember what they are?. Click on the mouse to check your answers below. Purchase Consideration Other Associated Costs. Step 2. Calculate Cost of Acquisition.

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## Calculate Cost of Acquisition

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Presentation Transcript

Step 2

Calculate Cost of Acquisition

The Cost of Acquisition consists of 2 components. Do you remember what they are?

• Purchase Consideration
• Other Associated Costs

Step 2

Calculate Cost of Acquisition

Costs directly attributable to the Acquisition

Purchase Consideration

+

This is what the acquirer gives up

• Accounting Fees
• Consultancy Fees
• Legal Fees
• Valuations
• Assets exchanged
• Liabilities assumed
• Shares issued

Step 2

Calculate Cost of Acquisition

Shareholders of Pizza Ltd receive 1 share for every 2 shares held.

There are 50,000 shares altogether and each share has a value of \$2

Since \$20,000 will be paid after 1 year, its fair value is equal to the present value, The discount rate (11%) is based on Burger Limiteds interest rate (see Loan in the Balance Sheet)

Step 2

Calculate Cost of Acquisition

Did you read the comment by the Board Chairman? He said that legal fees amounted to \$1,500

Now we can calculate the cost of acquisition.

• Purchase Consideration = \$68,018
• Other Associated Costs = \$ 1,500
• Cost of Acquisition = \$69,518

End Step 2