On 1 July 2012,Han Solo Ltd acquired 80 per cent of the share capital of Chewbacca Ltd for $500,000,which represented the fair value of the consideration paid,when the share capital and reserves of Chewbacca Ltd were: Share capital $300,000
Revaluation surplus $100,000
Retained earnings $100,000
$500,000
All assets of Chewbacca Ltd were recorded at fair value at acquisition date,except for machinery that had a fair value $20,000 greater than its carrying amount.The cost of the equipment was $40,000 and it had accumulated depreciation of $10,000.The tax rate is 30 per cent?
Under the full goodwill method,what is the amount of fair value adjustment and goodwill,respectively,on 1 July 2012 for non-controlling interests in Chewbacca Ltd?

Question

Quizplus · Accepted Answer

Under the full goodwill method, fair value adjustment is calculated as the difference between the fair value of the identifiable net assets acquired and their carrying amount, adjusted for any partial goodwill. In this case, the identifiable net assets of Chewbacca Ltd are:
- Share capital: $300,000
- Revaluation surplus: $100,000
- Retained earnings: $100,000
- Machinery: $60,000 ($40,000 + $20,000 - $10,000)
Total identifiable net assets: $560,000
80% of identifiable net assets: $448,000
Consideration paid: $500,000
Fair value adjustment: $52,000 (i.e. $500,000 - $448,000)
Goodwill: $22,200 (i.e. $52,000 x 20%)
The non-controlling interests in Chewbacca Ltd is 20%, so their share of fair value adjustment and goodwill is:
Fair value adjustment: $2,800 (i.e. $52,000 x 20%)
Goodwill: $22,200 (i.e. $22,200 x 20%) 
Therefore, the correct answer is C: $2,800 fair value adjustment and $22,200 goodwill for non-controlling interests in Chewbacca Ltd.

On 1 July 2012,Han Solo Ltd Acquired 80 Per Cent