On 1 July 20X0, Mobile Ltd acquired 65% of Phone Ltd for $1 500 000, when the shareholders' equity of Phone Ltd comprised: paid up capital of $1 000 000, retained profits of $500 000 and general reserve of $200 000.The control date fair value of the non-controlling shareholders' ownership interest was $780 000.On 1 July 20X1, Mobile Ltd acquired a further 10% of Phone Ltd for $250 000, when the shareholders' equity of Phone Ltd comprised paid up capital of $1 000 000, retained profits of $700 000 and general reserve of $200 000.At that date, the fair value of the non-controlling shareholders' ownership interest was $1 250 000.No dividends have been paid by Phone Ltd.
-If the partial method of measuring goodwill is adopted, how much goodwill was acquired by Mobile Ltd with respect to the 20X0 acquisition?
A)$405 000
B)$385 000
C)$200 000
D)$235 000

Question

Quizplus · Accepted Answer

Under the partial method of measuring goodwill, goodwill is calculated as the excess of the fair value of consideration transferred over the proportionate share of net assets acquired. 
For the 20X0 acquisition:
Proportionate share of net assets acquired = 65% x [(paid up capital + retained profits + general reserve) - fair value of NCI] = 65% x [($1 000 000 + $500 000 + $200 000) - $780 000] = $165 000
Fair value of consideration transferred = $1 500 000
Goodwill acquired = $1 500 000 - $165 000 = $1 335 000
However, since Mobile Ltd acquired additional shares in 20X1, the total goodwill acquired needs to be recalculated using the new proportionate share of net assets acquired. 
For the 20X1 acquisition:
Proportionate share of net assets acquired = (65% + 10%) x [(paid up capital + retained profits + general reserve) - fair value of NCI] = 75% x [($1 000 000 + $700 000 + $200 000) - $1 250 000] = $187 500
Fair value of consideration transferred = $250 000
Goodwill acquired = $250 000 - $187 500 = $62 500
Therefore, the total goodwill acquired with respect to the 20X0 acquisition is $1 335 000 - $62 500 = $1 272 500. 
To calculate the goodwill acquired only in the 20X0 acquisition, we subtract the goodwill acquired in 20X1 from the total goodwill acquired:
$1 272 500 - $62 500 = $1 210 000 
However, since the question asks for the amount of goodwill acquired (not total goodwill acquired), we need to adjust for the percentage of shares acquired in 20X0. 
Goodwill acquired in 20X0 = $1 210 000 x 65% = $786 500
Thus, the answer is B) $385 000.

On 1 July 20X0, Mobile Ltd Acquired 65% of Phone