Noncontrolling interest On Jan 1, 2016, P bought a 75% interest in S company for
ID: 2597781 • Letter: N
Question
Noncontrolling interest On Jan 1, 2016, P bought a 75% interest in S company for cash of$600 million. The fair value of the 25% noncontrolling interest was $ 190 million at the acquisition date. Assume that the book value of S was $700 million. S also had intangible assets, with a 10 year life, that were undervalued on its books by $20 million. During 2016, S had net income, on its books, of $50 million and paid a total of $24 million in dividends. a. Compute the amount of goodwill that should be allocated to: i. Controlling interest (2 points) ii. Noncontrolling interest (2 points) b. Compute the noncontrolling interest in income (3 points) c. Compute the noncontrolling interest on the balance sheet at December 31, 2016 3 points)Explanation / Answer
a.
Computation of Goodwill
in millions $
Cash Consideration paid by P for 75%
600
Add : Fair value of Noncontrolling interest (25%)
190
790
Less: Net assets at the date of acquisition i.e. Jan 1, 2016
-720
(WN1)
Goodwill
70
i. Goodwill of Controlling Interest
75%
52.5
ii. Goodwill of Noncontrolling Interest
25%
17.5
b.
Noncontrolling Interest in income
Noncontrolling Interest in income means the share of profit of the
current year belonging to Noncontrolling shareholders
Current year profit is 50m, hence 25% of 50m
12.5
c.
Noncontrolling Interest on Balancesheet date i.e. 31 Dec 2017
At the Date of Acquisition (as given)
190
Add: Share of post acquisition increase in net assets (25% of 28)
7
(WN1)
Less: Dividends paid (24 * 25%)
-6
191
Comments:
1
As you see there is a difference between NCI in Income and balancesheet that is because NCI was valued at Fair value at the date of acquisition. Fair value of S was higher than book value at the date of acquisition
WN1
Net Assets Calculation
Jan 1, 2016
Dec 31, 2017
in millions $
Book value
700
700
Add: Profit during the year
50
Increase In fair value of Intangible Assets
20
Less: Depreciation ( 20/10)
-2
Value of Net assets
720
748
Hence post acquisition increase in net assets is (748-720)
28
a.
Computation of Goodwill
in millions $
Cash Consideration paid by P for 75%
600
Add : Fair value of Noncontrolling interest (25%)
190
790
Less: Net assets at the date of acquisition i.e. Jan 1, 2016
-720
(WN1)
Goodwill
70
i. Goodwill of Controlling Interest
75%
52.5
ii. Goodwill of Noncontrolling Interest
25%
17.5
b.
Noncontrolling Interest in income
Noncontrolling Interest in income means the share of profit of the
current year belonging to Noncontrolling shareholders
Current year profit is 50m, hence 25% of 50m
12.5
c.
Noncontrolling Interest on Balancesheet date i.e. 31 Dec 2017
At the Date of Acquisition (as given)
190
Add: Share of post acquisition increase in net assets (25% of 28)
7
(WN1)
Less: Dividends paid (24 * 25%)
-6
191
Comments:
1
As you see there is a difference between NCI in Income and balancesheet that is because NCI was valued at Fair value at the date of acquisition. Fair value of S was higher than book value at the date of acquisition
WN1
Net Assets Calculation
Jan 1, 2016
Dec 31, 2017
in millions $
Book value
700
700
Add: Profit during the year
50
Increase In fair value of Intangible Assets
20
Less: Depreciation ( 20/10)
-2
Value of Net assets
720
748
Hence post acquisition increase in net assets is (748-720)
28
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