Question

On July 8th, 2013 LVMH purchased 80% of Loro Piana (luxury Italian cashmere brand) for $2.8 billion. The fair value of Loro Piana’s identifiable assets and liabilities on that date were as follows:

Million $

Current Assets 500

Brand 1,500

Fixed Assets 1,000

Liabilities 1,300

The remaining 20% interest remained in Loro Piana family’s hands. Part I - Required: 1. LVMH applied the proportionate share method to account for its acquisition of Loro Piana. How much noncontrolling interest and goodwill did LVMH recognize on July 8th, 2013?

Answer 1

Sol :

1.Calculation of Fair Value of Identifiable Net Assets(INA)

Current Assets + Brand + Fixed Assets - Liabilities

= (500+1500+1000-1300) = $1700 Millions

Parent Company(LVMH) share 80% 1360 Million $

Non-Controlling Interest(Loro Piana) 20% 340 Million $

100% 1700 Million $

2.Calculation of Goodwill or Gain on Bargain Purchase on DOA

Fair Value of Consideration Paid(A) 80% 2800 Million $

Fair of Non controlling Interest(B) 20% 340 Million $

A + B 100% 3140 Million $

Less : Fair Value of INA (C) 100% 1700 Million $

Goodwill (A+B)-C 1440 Million $

Therefore Goodwill = 1440 Million $

Non controlling Interest = 340 Million $.