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Hello,
I apologise in advance because I appreciate this is fundamental but I cannot wrap my head around why this doesn’t work.
Sprite has share capital of 200,000
Retained earnings on acquisition of 25,000and we purchase an 80% stake in sprite for 300,000.
We are told that the Fair Value of NCI at acquisition is 65,000. So can calculate goodwill as 140,000 (of which the NCI share is 28,000).
So we have goodwill as 140,000 and net assets on acquisition of 225,000.
Why does 20% of (140,000 + 225,000) not equal the fair value of the NCI at acquisition?
Shouldn’t the fair value of the NCI equal its share of net assets plus goodwill?
I know I am missing something but I can’t get past it!
Thank you!
This is to help me understand why when you do a Control to Control adjustment, the treatment is different depending on which direction you go in.
If the group is increasing you holding you reduce NCI by the change in ownership (ie if NCI is 80k and the group goes from an 80 to 88% holding your reduce the NCI from 80k to 48k).
If the group is decreasing its holding from 75% to 65% you incase NCI by 10% of the Net Assets + Goodwill.
Why are those methods not interchangeable? Ie if you are increasing from 80 to 88% why can’t you increase NCI by 8% of the value of Net Assets + Goodwill?
Many thanks,
Sam
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