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On 31 December 20x8, M Ltd paid $300,000 to acquire 80% interest of N Ltd when...

On 31 December 20x8, M Ltd paid $300,000 to acquire 80% interest of N Ltd when the fair value of N Ltd’s net assets was represented by share capital of $100,000 and retained profit of $100,000, except for N Ltd’s freehold land which was carried at $100,000 but deemed to have a fair value of $150,000. On this date, N Ltd’s share capital comprised 100,000 ordinary shares with a fair value of $2.60 per share.

Assuming the group policy of measuring non-controlling interest at acquisition date based on its proportionate share of the fair value of identifiable net assets of subsidiaries acquired, “Goodwill on consolidation” in M Ltd’s 20x8 consolidated financial statements

= $..........................................................................................................................

Assuming the group policy of measuring non-controlling interest at acquisition date based on its fair value, “Goodwill on consolidation” in M Ltd’s 20x8 consolidated financial statements

= $..........................................................................................................................

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Answer #1

method no 1: Calculation of controlling intrest( 80%) based on identifiable net assets

Cost of control

A Cost of investment = $ 3,00,0000

B Share in Net Assets

share capital ( $1,00,000 * 80% ) = $ 80,000

Share in Reserve ( both pre- acquisition and revaluation of asset) = $1,20,000 ( $150000 *80%)

TOTAL (B) = $ 2,00,000

GOODWILL ( A - B) = $1,00,000

method no 2: Calculation of controlling intrest( 80%) based on fair value of share

Cost of control

A Cost of investment = $ 3,00,0000

B Share in Net Assets

share in Fair value of share(80, 0000 share * $2.6 ) = $ 2.08,000

GOODWILL ( A - B) = $ 92,000

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