Plant Entity acquires Seed Entity by purchasing 40,000 of Seed Entity's 50,000 shares for $20/share. The fair value of Seed Entity's net identifiable assets is $750,000. What is the difference in goodwill recognized between the fair value method and the NCI's share of net identifiable assets method?
A) $0
B) $50,000
C) $100,000
D) $150,000

Question

Quizplus · Accepted Answer

Under the fair value method, goodwill is calculated based on the entire fair value of the acquired entity, while under the NCI's share of net identifiable assets method, goodwill is calculated separately for the parent and the NCI. Here, Plant Entity acquires 80% of Seed Entity, paying $800,000 (40,000 shares at $20/share). The fair value of Seed Entity's net identifiable assets is $750,000, implying a preliminary goodwill of $50,000 ($800,000 - $750,000). For the NCI's share of net identifiable assets method, the NCI's share (20%) of the fair value of net identifiable assets is $150,000 (20% of $750,000), but under the fair value method, the NCI's fair value is not directly considered in calculating goodwill. Thus, the difference in goodwill recognized between the two methods is $50,000, reflecting the additional amount recognized under the fair value method due to not adjusting for the NCI's share of net identifiable assets directly.

Plant Entity Acquires Seed Entity by Purchasing 40,000 of Seed