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Hi, I am a bit confused.
Goodwill is calculated as Cost of investment + NCI at acquisition – Fair Value of Net Assets
Why is FV of net assets calculated as [Share capital + Reserves] and not Market Price of Subsidiary’s shares?
Is Market Price of the shares not equal to the fair value of the net assets?
Thanks
No, absolutely NOT
The market value of a company’s shares is determined by all sorts of sentimental decisions made by investors …
anticipation that maybe the company will make a profit this year wher that same company has made losses over the last 4 years
rumour that the CEO is going to resign after a tabloid newspaper has published pictures of him with extremist factions in the United States
inside knowledge of the successful final trials of a revolutionary new process developed by the company
All sorts of reasons could (and do) affect the market price of quoted securities
If it were simply ‘fair value of net assets divided by number of shares’ everyone would be a winner in the area of share dealing … in fact, there would be no share dealing because the market price of. Share would always be the same as the fair value
And clearly that’s nonsense
OK?
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