Black Ltd acquired 75 % of White Ltd on 1 January 20X1 by paying $5 000 000 cash.At that date, the equity section of White Ltd's balance sheet was as follows:
$\begin{array}{llcc}
&\$\
\text {Share capital } &1000000 \
\text { Retained profits} &3000000\
\text { Asset revaluation reserve } &500000\

\end{array}$

All assets and liabilities were recorded at their fair values.During May 20X1 White Ltd paid a total dividend of $1 000 000 out of profits earned before 1 January 20X1.
How much goodwill was acquired by Black Ltd under the partial method?

Question

Black Ltd acquired 75 % of White Ltd on 1 January 20X1 by paying $5 000 000 cash.At that date, the equity section of White Ltd's balance sheet was as follows:
$\begin{array}{llcc}
&\$\
  \text {Share capital  } &1000000  \
 \text {  Retained profits} &3000000\
 \text { Asset revaluation reserve } &500000\

\end{array}$

All assets and liabilities were recorded at their fair values.During May 20X1 White Ltd paid a total dividend of $1 000 000 out of profits earned before 1 January 20X1.
How much goodwill was acquired by Black Ltd under the partial method?

Quizplus · Accepted Answer

Goodwill under the partial method is calculated as the purchase consideration minus the parent's share of the net assets of the subsidiary. The net assets of White Ltd at acquisition are $4,500,000 ($1,000,000 share capital + $3,000,000 retained profits + $500,000 revaluation reserve). Black Ltd's share is 75% of $4,500,000, which is $3,375,000. The purchase consideration is $5,000,000. Therefore, goodwill is $5,000,000 - $3,375,000 = $1,625,000.

Black Ltd Acquired 75 % of White Ltd on 1