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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

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
calculate cost of acquisition2

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
calculate cost of acquisition3

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)

calculate cost of acquisition4

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