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Wheddon Co purchased 60,000 ordinary shares in Raleigh Co for $85,000 five years ago, when Raleigh Co’s
retained earnings were $20,000.
Raligh Co’s equity and reserves at 31 July 20X9 were as follows:
Ordinary shares $1 80,000
Retained earnings 70,000
The fair value of the non-controlling interest at acquisition was $22,000.
What was the goodwill arising on acquisition of Raleigh Co?
A $7,000
B $10,000
C $25,000
D $43,000Correct answer: A ($7000)
Can someone please explain?
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Firstly there is the calculation:
Consideration Paid—————————————–85,000
Add: Fair value of NCI————————————-22,000
————
107,000
Less Net Asset:
Shares 80,000
Retained Earning @ acquisition 20,000 (100,000)
________
Goodwill to SOFP 7,000
————–always take retained earning at the date of acquisition for the computation of goodwill.hope u understand.
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