on 1 july anderson ltd require 70 % of equity capital of ARthur a cost of $ 4 mi

Question

on 1 july anderson ltd require 70 % of equity capital of ARthur a cost of $ 4 millions at the date of acquisition all assets of arther are fairy stated and the total shareholder funds of arthur are $ 4.4 millions cosisting of
share capital 3 m
retained earning 1.4 M
addditional information
- the management of anderson measures any non controlling interest in arthur at fair value
- during 2012 financial year arthur sells $45 000 of inventory to anderson at the year end anderson has sold this inventory
tax rate 30 %

Explanation / Answer

A transaction is the purchase of a business at a price in excess of the fair value of its net assets(assets-liabilities). The excess is recorded as goodwill and reported as an intangible asset.
Cost of net assets                  $4 millions Purchase of a business           $4.4 millions Goodwill   = $0.4 millions

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