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Hello Chris,
Can you help me to deal with the following question?
Boat Co acquired 60% of Anchor Co on 1 January 20X4. At the date of acquisition, the carrying amount of Anchor Co’s net assets were the same as their fair values, with the exception of an item of machinery which had a carrying amount of $90,000 a fair value of $160,000 and a remaining useful life of five years. Non-controlling interests are valued at fair value.
What is the journal entry required to reflect this fair value adjustment in the consolidated
statement of financial position of Boat Co as at 31 December 20X6?.1. The answer is:
Dr Retained earnings $25,200
Dr Non-controlling interest $16,800
Dr Property, plant and equipment $28,000
Cr Goodwill $70,0002. Why do we need to credit goodwill by $70,000?
Thanks.
Hi,
Where did you get this question from, as I doubt that you’d get one as challenging as this in the exam. If it does appear in the exam then just skip it!
To work it out I’d think about how you’d approach it in the net assets working. Firstly you would increase the net assets at acquisition by $70,000 to take account of the increase in value of the machinery. The total of the net assets at acquisition goes in our goodwill calculation and as we’ve just increase this be $70,000 and deducting this from the FV of consideration, the goodwill is going to fall in value. This then gives us the credit.
Thanks
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