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Good afternoon sir, i came across a question in which pop acquired 75% of snap when snap had a retained earnings balance of $1 million and the fair value of non controlling interest at the time was $1.5 million. i thought the consideration that pop had was $4.5 million but the solution says $6 million, i don’t understand how. i was hoping you could clear it up?
You have not given all of the information in the question.
I am guessing that Pop paid $4.5m for 75% of the shares,
If that is the case then when calculating the goodwill arising on consolidation we take the consideration and add the fair value of the non-controlling interest (and then subtract the fair value of the assets at the date of acquisition).
If 75% of the shares cost $4.5m, then the value of the non-controlling interest of 25% must be 25/75 x 4.5m =$1.5m. So the total of the two is $6m.
Have you watched my free lectures on consolidations?
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