Reference no: EM133110118

Question - Recently Amy Ltd acquired 100% of the issued shares of Astra Ltd for $80,000 (Astra Ltd.'s owner's equity at the time of purchasing was $100,000 made up of share capital of $80,000 and retained earnings of $20,000). One of the liabilities of Astra Ltd was $18,000 for the dividend payable but not yet paid, and our accountant informed me that the shares were acquired based on Ex-dividend. In addition, one of the areas of discussion during the negotiation process was the current court case that Astra Ltd was involved in. No monetary amount was disclosed, but the company's lawyers had placed a $6000 amount on the probable payout to settle the case.

Having prepared the acquisition analysis as part of preparing the consolidated financial statements for Amy Ltd, can you explain how the unrecorded contingent liability of $6,000 by the subsidiary Astra Ltd affects the group's goodwill? I believe the goodwill for Amy Ltd should be $20,000 (being $80,000 less $100,000). Is this correct?

In addition, will the dividend payable by the subsidiary entity Astra Ltd impact the acquisition analysis? Please explain?