Question

On 1 July 2019, Adelaide Ltd acquired 75% of the issued shares of Canberra Ltd for $720,000. At this date, the equity of Canberra Ltd consisted of share capital of $400,000 and retained earnings of $210,000. All the identifiable assets and liabilities of Canberra Ltd were recorded at amounts equal to fair value except for the following.

	Carrying Amount	Fair value
Machine (cost $50,000)	20,000	24,000
Plant (cost $400,000)	200,000	280,000
Inventories	50,000	66,000

Canberra Ltd also had an internally generated patent not recognised at 1 July 2019. Adelaide Ltd assessed the fair value of that patent at $80,000. The tax rate is 30%.

Required

1. Prepare the acquisition analysis at 1 July 2019 assuming that Adelaide Ltd used the full goodwill method and the fair value of the non‐controlling interest at 1 July 2019 was $220,000.
2. Calculate the Control premium for the parent.

Answer 1

Uner full value goodwill method, control premium is required to be determined as under :

Control Premium (Goodwill) = Consideration paid+fair value of non controlling interest - fair value of net identifiable asset

150,000 = 720,000+220,000 - 790,000*

*Calculaiton of fair value of Identifiable assets :

Particulars			Amount
Equity			400,000
Retained earnings			210,000
Increase in Networth for incremental fair value
	Carrying Amount	Fair value	Addition to networth
Machine (cost $50,000)	20,000	24,000	4,000
Plant (cost $400,000)	200,000	280000	80,000
Inventories	50,000	66000	16,000
Patent	0	80000	80,000
Total			790,000