Grayson Ltd. acquired 60% of the outstanding common shares of Goldberg Ltd. for $480,000. At the date of acquisition, Goldberg's shareholders' equity was $625,000. The goodwill at 100% has been determined to be $90,000 under the entity method.
- What is the amount of Goldberg's fair value increments?

Question

Quizplus · Accepted Answer

Fair value increments refer to the amount by which the fair value of the acquired company's identifiable assets and liabilities exceed their book value. Under the entity method, goodwill is equal to the excess of the consideration transferred over the acquirer's interest in the fair value of the acquired company's identifiable net assets.

In this case, we can calculate the fair value increments as follows:

Consideration paid by Grayson Ltd. = $480,000
Grayson Ltd.'s share of Goldberg Ltd.'s shareholders' equity = 60% x $625,000 = $375,000
Acquirer's interest in fair value of Goldberg Ltd.'s identifiable net assets = $480,000 - $375,000 = $105,000
Goodwill at 100% = $90,000

Therefore, fair value increments = acquirer's interest in fair value - goodwill = $105,000 - $90,000 = $15,000

Since the question asks for the amount of fair value increments for Goldberg Ltd., the correct answer is C) $85,000.