(Goodwill combination- partial method) Red Corp. acquired 80% shareholding in Bl

Question

(Goodwill combination- partial method)

Red Corp. acquired 80% shareholding in Blue Corp. for $40 million. Book value of net identifiable assets of Blue Corp. is $25 million.

The fair value of Blue’s asset is the same as their book value except accounts receivables which are impaired by $5 million.

Book value of assets is $ 75 million while book value of liabilities is $55 million.

The purchase consideration is the cash paid to acquire 80% ownership and it equals $40 million.

Task: Compute the goodwill

Explanation / Answer

Partial method: Under partial method only proportionate fair value of subsidiary assets is deducted from purchase price to arrive at goodwill attributable to majority.

Purchase price paid for acquisition = $40 Million

Less: fair value of Blues Assets-80% = 16 Million [(75-55) x 80% = 16]

Goodwill attributable to majority = 24 Million

Goodwill attributable to NCI = 6 Million

Total Goodwill = 30 Million

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