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Having reviewed the working for example 3, chapter 6, kindly provide an explanation for me given the following analysis:
In the example, the credit entry for NCI was calculated as 20% of the group’s net assets at disposal plus the good will on aquisition of the initial investment of 90%. If 10% of the 90% is now being disposed of, why is the credit entry for the NCI calculated using the total NCI share of 20%, instead of just looking at the 10% share that is being transferred to NCI? Isn’t the purpose of the exercise to determine what the newly acquired NCI 10% is worth in terms of the net assets and Goodwill which will be10% of $400 mil?
Thank you in advance for a prompt response.
Sorry, I don’t quite understand your query. Can you elaborate a bit further please?
In the question, net assets for the subsidiary plus goodwill comes to$3,400. The parent sells 10% of it’s equity shares. In preparing the journal entries, the portion going to NCI was calculated at 20% of the net assets. Since only 10% equity is being transferred, shouldn’t the NCI entry be computer as 10% of the net assets? I hope this explanation is clearer.
If we’re disposing of 10% then we transfer 10% of the net assets and goodwill in the calculations.