On 1 January 20X0, Zed Ltd acquired 90 % of the share capital of Ned Ltd for $900 000 cash.At that date, the equity section of Ned Ltd's balance sheet was as follows:
$\begin{array}{llcc}
&\$\
\text {Share capital } &700000 \
\text { Retained profits} &50000\
\text { Asset revaluation reserve } &100000\

\end{array}$

Assume all assets and liabilities were recorded at their fair values, except for a piece of equipment recorded at $50 000 but Zed Ltd considers it to have a fair value of $100 000. This equipment is not revalued by Ned Ltd. What was the difference on acquisition under the partial method?

Question

On 1 January 20X0, Zed Ltd acquired 90 % of the share capital of Ned Ltd for $900 000 cash.At that date, the equity section of Ned Ltd's balance sheet was as follows:
$\begin{array}{llcc}
&\$\
  \text {Share capital  } &700000  \
 \text {  Retained profits} &50000\
 \text { Asset revaluation reserve } &100000\

\end{array}$

Assume all assets and liabilities were recorded at their fair values, except for a piece of equipment recorded at $50 000 but Zed Ltd considers it to have a fair value of $100 000. This equipment is not revalued by Ned Ltd. What was the difference on acquisition under the partial method?

Quizplus · Accepted Answer

Under the partial method, we only recognize the identifiable assets and liabilities of the subsidiary, and any excess is considered as goodwill.

Identifiable assets:

- Share capital: 700,000
- Retained profits: 50,000
- Asset revaluation reserve: 100,000
- Equipment (fair value): 100,000

Total identifiable assets: 950,000

Identifiable liabilities: None mentioned in the question

Purchase consideration: $900,000

We can calculate the difference as follows:

Difference = Purchase consideration - Identifiable assets
Difference = $900,000 - $950,000
Difference = -$50,000

Since the difference is negative, it means that the identifiable assets are worth more than the purchase consideration. This is known as a bargain purchase. However, since we are using the partial method and only recognizing identifiable assets, we do not adjust the difference. Instead, we recognize it as goodwill.

Therefore, the difference on acquisition under the partial method is $90,000 goodwill (Option C).

On 1 January 20X0, Zed Ltd Acquired 90 % of the Share