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- This topic has 5 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
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- July 24, 2015 at 2:07 am #261578
Hello Mike
The lecture for this question seemed to finish abruptly and after reading the comments below the lecture I still have questions:
For M in A, why is the net assets at DOA, NCI valuation in the goodwill calculation for M in A 35,000 shares @ $1?
Why is an NCI valuation not included in the M in L calculation for net assets at DOA?
For the goodwill calculation for M in L, the NCI valuation was the remaining 60,000 shares plus the cost of the investment. But for M in A, its the cost of investment alone, why?
July 24, 2015 at 9:07 am #261601Because $35,000 is the share capital of Arta and Maija is acquiring control over her share of that $35,000
Because we’re looking at the value of Linda’s net assets and those figures are given to us in the form of share capital and retained earnings
Because when Linda bought Arta, there was no investment (I assume you mean the investment by Linda in Arta)
Ok?
July 26, 2015 at 2:27 am #262038Hello again Mike,
Thanks for responding. I’m sorry but I’m still having trouble following for the first 2 out of 3 questions I asked.
I know the 35k is the share capital of A, which is being taken over by M, but why isn’t it apportioned as in the NCI valuation for M in L where M bought 70 % of L’s 200,000 $1 equity shares?
But for M in A, there’s an NCI valuation and the share capital and retained earnings values are given. What’s the difference between M in L and M in A?
Ok
July 27, 2015 at 10:22 pm #262561If you look at working W2 you’ll see that the investment in Arta through Linda is apportioned! We take 70% of the cost (because the other 30% is attributable to the nci) and then we take only 70% of 55% as being Maija’s 70% interest in the 55% holding by Linda in Arta.
The difference is merely a different way of tackling the calculation. Sometimes it’s easier to take the cost of the investment + the value of the nci and compare with the full fair value of the net assets acquired. Sometimes it’s easier to take out proportionate share of the cost of the investment and our proportionate share of the fair value of the net assets acquired.
You’re going to have to learn to be flexible! Personally I find it easier to take cost of acquisition + fair value of nci and compare with the full fair value of the subsidiary net assets acquired, but sometimes that’s not available
Try to make sense of the logic of each of the two approaches. If you can follow the logic, you’ll find the entire topic much, much easier and more rewarding than simply trying to learn by rote the layout of the answer!
Post again if you’re still not sure and I’ll try again!
July 28, 2015 at 3:52 am #262570Hello Mike
In response to what you said in the 2nd paragraph, I’m accustomed with the first approach, “the cost of the investment + the value of the nci and compare with the full fair value of the net assets acquired”
With regards to the second approach, “take out proportionate share of the cost of the investment and our proportionate share of the fair value of the net assets acquired”, i understand what you are saying there.
Also, In working #2 for Goodwill-M in A, I understand:
1. that our proportionate share of the cost of the investment is 70% of $90,000 which gives the $63,000.
2.the entire retained earnings figure of 125,000 is used because L has the majority share holding of 55%However, what I don’t understand is for “our proportionate share of the fair value of the net assets acquired”. :
1. Why is the NCI valuation included as part of the net assets?
2.Since L has the 55% majority , the 125,000 retained earnings is used but since M has 70% of L, and proportionate share is mentioned, why isn’t a proportionate share of the share capital used?Thanks for your patience thus far Mike.
July 28, 2015 at 8:43 am #262588Because, although Linda has 55% of Arta, Maija has only 70% of Linda
So Maija’s interest in Arta’s fair valued net assets is only 70% of 55%
Concentrating only on Maija / Arta, the cost of the investment is 70% of the cost of Linda’s investment in Arta and that is compared with Maija’s share of the net assets acquired (70% x 55%)
Is that better?
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