North Limited acquired 80% of the shares in South Limited for $100 000. At acquisition date, share capital in South was $90 000 and reserves amounted to $50 000. All assets and liabilities of South were recorded at fair value at acquisition date. The partial goodwill method is adopted by the group. If the company tax rate was 30%, the NCI will recognise a gain on bargain purchase of:

Question

Quizplus · Accepted Answer

The partial goodwill method is used and there is a gain on bargain purchase, which means that the fair value of net assets acquired (after adjusting for the 80% controlling interest) is greater than the consideration paid. However, under partial goodwill method, the gain is only recognised in the books of the controlling interest and not in the NCI's books. Therefore, there is no gain on bargain purchase to be recognised by the NCI in this scenario.

North Limited Acquired 80% of the Shares in South Limited