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Sir, in the question Xpand,
1) The purchase price of the company Hydan was given as 30,000 and the equity of the company was 18,700. I do understand that the difference is goodwill but for calculating ratios like ROCE and ROE, will we use 30,000 or 18,700?
2) Also, what would be the credit when goodwill is acquired?
Thanks
The equity of the acquired subsidiary is $18,700?
Then that’s the figure to use for the ratios
“Also, what would be the credit when goodwill is acquired?”
The working W2 shows us the goodwill calculation and is, essentially, the difference between the value attributable to the acquired entity (measured as the purchase consideration paid / payable by the parent together with the value attributable to the nci) and the fair value of the subsidiary net assets as at date of acquisition
So the double entry for the purchase consideration is (Dr Acquisition Account) credits to share capital, share premium, loan notes, cash (all as appropriate) and a credit to the nci account
The double entry for the fair valued net assets as at date of acquisition is:
Dr Various assets at their fair values (and credit various liabilities at their fair values) and a credit of that net total to the Acquisition Account
The balancing figure in that Acquisition Account is the Goodwill so we need to Dr Goodwill Account and the balancing figure in the Acquisition Account is the corresponding credit entry
Is that OK?
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