On 1 July 2021 Barry Ltd acquired 25% of the ordinary issued share capital of Charlie Ltd for $300 000. This investment gave rise to significant influence. The share capital and reserves of Charlie Ltd at 1 July 2021 were:
$$\begin{array} { | l | r | }
\hline \text { Share capital } & \$ 500000 \
\hline \text { General reserve } & 200000 \
\hline \text { Retained earnings } & 384000 \
\hline & \$ 1084000 \
\hline
\end{array}$$ All the identifiable net assets of Charlie Ltd were stated at fair value at the date of acquisition except for equipment whose carrying value was $30 000 less than the fair value. The tax rate is 30%. Goodwill arising on Barry's acquisition of Charlie was:

Question

On 1 July 2021 Barry Ltd acquired 25% of the ordinary issued share capital of Charlie Ltd for $300 000. This investment gave rise to significant influence. The share capital and reserves of Charlie Ltd at 1 July 2021 were:
$$\begin{array} { | l | r | } 
\hline \text { Share capital } & \$ 500000 \
\hline \text { General reserve } & 200000 \
\hline \text { Retained earnings } & 384000 \
\hline & \$ 1084000 \
\hline
\end{array}$$ All the identifiable net assets of Charlie Ltd were stated at fair value at the date of acquisition except for equipment whose carrying value was $30 000 less than the fair value. The tax rate is 30%. Goodwill arising on Barry's acquisition of Charlie was:

Quizplus · Accepted Answer

Goodwill is calculated as the difference between the cost of the investment and Barry's share of the net fair value of Charlie's identifiable net assets at the acquisition date. The net assets at acquisition are $1,084,000, and adjusting for the equipment fair value gives an additional $30,000 less the deferred tax ($30,000 * 30% = $9,000), so the adjustment is $21,000. The adjusted net assets are $1,105,000. Barry's share (25%) is $276,250. The cost of the investment is $300,000. Therefore, goodwill is $300,000 - $276,250 = $23,750.

On 1 July 2021 Barry Ltd Acquired 25% of the Ordinary