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LAUREL
At the date of acquisition, Laurel conducted a fair value exercise on Rakewood’s net
assets which were equal to their carrying amounts with the following exceptions:– inventory of $800,000 had a fair value of $1m. All of this inventory had been sold
by 30 September 20X6.ANSWERS
Non?controlling interest
((10,400 × 9/12) – 200 re inventory – 1,500 depreciation – 300 PUP) ×40%)) 2,320Good day, I don’t understand why inventory fair value of 200 was removed from the nci value. I’ll appreciate your explanation.
Hi,
I think that you are best dealing with this adjustment via the net assets working.
We need to adjust the fair values at the acquisition date and at the reporting date. In this scenario the fair value of inventory is $200,000 higher at the reporting date than its book value, so we would add this to the net assets at acquisition column.
The inventory has been sold by the reporting date and so there is now no inventory in the books, so the fair value adjustment is no longer required and there is nothing to include in the net assets working.
The figure in the answer above is the post acquisition movement in net assets, whereby the reporting date fair value was nil from which we then deduct the acquisition fair value adjustment of 200, giving a negative 200 figure.
It’s a tricky one but not one we regularly see and if you see it again then think it through using the net assets working.
Thanks
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