Consolidated statement of financial position

MMomena10y ago

Can you plz help me with this question On 31st july 20x7 P aquired 60% of the 100,000 $1 ordinary shares of S for a sum of $240,000. S had acc profit at 1st jan 20x7 of $200,000 and during the year to 31st dec 20x7 made a profit of $60,000 What is the fig for purchased goodwill attributable to the equity owner of P that should appear at 31st dec 20x7 in consolidated statement of financial position A. 60,000 B. 39,000 C. 95,000 D.24,000 Mine ans is 60,000 but its actual ans is 39,000....why?

HHazE10y ago#1

Ok lets see The profit made of 60,000 is for the whole year, so if we divide it per months it would be 5000 per month and since P acquired S on 31st of July so thats 7 months of profit thats pre-acquisiton which makes the profit account total 200.000 + (7*5000)=235000 Since they acquire 60 percent of shares so 60 percent of 235000= 141000 So goodwill is 60,000 shares plus 141000 = 201,000 and subtract this from the consideration paid of 240,000 gives us 39000 Makes Sense?? hopefully

SISir Insanity10y ago#2

@hazzy said: Ok lets see The profit made of 60,000 is for the whole year, so if we divide it per months it would be 5000 per month and since P acquired S on 31st of July so thats 7 months of profit thats pre-acquisiton which makes the profit account total 200.000 + (7*5000)=235000 Since they acquire 60 percent of shares so 60 percent of 235000= 141000 So goodwill is 60,000 shares plus 141000 = 201,000 and subtract this from the consideration paid of 240,000 gives us 39000 Makes Sense?? hopefully

Hey, can you explain why you took the 60 percent? ...Coz from what I know, goodwill is calculated as Contribution Paid + Fair Value of NCI - Net Assets of Subs. at Acquisition... Firstly, I assume the value of NCI has been omitted from the question, otherwise I don't know how one could go about it. Anyway, if the answer is 39,000, I'll assume that value of NCI was given as 134,000 (backward working). Now: Acc. Profit (Retained Earnings) at acquisition will be, as shown by HazE: 235000 Add the Ordinary share capital to get total net assets at acquisition: 235000 + 100,000 = 335,000 Answer: Contribution - 240,000 ADD NCI ----- 134,000 (Momena, check if NCI was given in the origianl q.?) DEDUCT Net Assets at Acquisition - (335,000) Goodwill ----- 39,000 I may be wrong, but I believe this is how we go about it

MmrjonbainModerator10y ago#3

Its basically because the question asks "what is the fig for the purchased goodwill attributable to equity owner P".This is why the proportionate method for valuing goodwill has been used and not the full goodwill method.This is why sixty per cent has been used.