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Dear Sir
In the below question we calculate the Goodwill to be 0
What clues/calculations lead to this conclusion?
I think they are:
-No ‘Opening’ retained earnings (company was bought when created therefore nothing earned)
-No ‘Fair value of NCI at Acquisition’I have an idea about which I am less confident:
-75% of Share Capital (at 20000) is 15000. So we paid 15000 for 15000 worth of company. Thus no goodwilldo we calculate goodwill to be 0 as a result of ALL of these assumptions or a subset ?
thanks in advance for your help
regardsP acquired 75% of the share capital of S on its incorporation. The Statements of Financial Position
of the two entities as at 31 December 2010 are as follows:
P S
Non-current assets 50,000 25,000
Investment in S, at cost 15,000
Inventory 13,000 7,000
Other current assets 10,000 6,000
88,000 38,000
Share capital – $1 shares 45,000 20,000
Retained earnings 30,000 15,000
Current liabilities 13,000 3,000
88,000 38,000You really need to watch my free lectures on consolidations (our lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well)
The goodwill is always the difference between the amount paid for the shares, and the holding companies share of share capital + reserves (+ any fair value adjustment).
Because it was bought on incorporation the reserves were zero, and there is no fair value adjustment.
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