Jack Limited acquired 80% of the share capital and reserves of Jill Limited for $300 000. Share capital was $200 000 and reserves amounted to $100 000. All assets and liabilities were recorded at fair value except buildings which was recorded at $20 000 below fair value. The fair value of the NCI at the date of Jack's acquisition was $70 000 and the full goodwill method is adopted by the group. If the company tax rate was 30%, the total goodwill in relation to this business combination amounts to:
A) $44 800.
B) $48 800.
C) $11 200.
D) $56 000.

Question

Quizplus · Accepted Answer

The total goodwill is calculated as: Consideration transferred ($300,000) + Fair value of NCI ($70,000) - Fair value of net assets acquired ($300,000). The fair value of net assets is adjusted for the building undervaluation ($20,000), so it becomes $320,000. Thus, goodwill = $300,000 + $70,000 - $320,000 = $50,000. However, since the building was undervalued by $20,000, the deferred tax liability adjustment is $20,000 * 30% = $6,000. Therefore, total goodwill = $50,000 + $6,000 = $56,000.

Jack Limited Acquired 80% of the Share Capital and Reserves