Graham Limited acquired 90% of the share capital and reserves of Terry Limited for $340,000. Share capital was $200 000 and reserves amounted to $124 000. All assets and liabilities were recorded at fair value except equipment which was recorded at $60 000 below fair value. The company tax rate was 30%. The partial goodwill method is adopted by the group. The NCI share of equity at the date of acquisition was:
A) $16 600
B) $34 000
C) $32 400
D) $38 400

Question

Quizplus · Accepted Answer

The NCI share of equity is 10% of the fair value of Terry Limited, which is $340,000 + $60,000 = $400,000. Therefore, the NCI share of equity is $400,000 x 10% = $40,000. However, the NCI share of reserves is only 10% of $124,000 = $12,400. Therefore, the NCI share of equity at the date of acquisition is $40,000 - $12,400 = $27,600.

Graham Limited Acquired 90% of the Share Capital and Reserves