Jiminez Limited acquired 80% of the shares in Mustang Limited for $180 000. At acquisition date, share capital in Mustang was $100 000 and reserves amounted to $50 000. All assets and liabilities of Mustang were recorded at fair value at acquisition date except buildings which was recorded at $10 000 below fair value. If the company tax rate was 30%, and the partial goodwill method was adopted, the NCI share of equity at the date of acquisition was:
A) $30 000.
B) $31 400.
C) $32 000.
D) $54 400.

Question

Quizplus · Accepted Answer

Calculation of Total Consideration Paid:
$180,000 / 80% = $225,000

Calculation of Fair Value of Net Assets:
Share Capital + Reserves = $100,000 + $50,000 = $150,000
Buildings recorded at $10,000 below fair value, so actual fair value = $10,000 + FV = FV - $10,000
FV = $20,000
Total fair value of net assets = $150,000 + $20,000 = $170,000

Calculation of Goodwill:
Total Consideration Paid - Fair Value of Net Assets = Goodwill
$225,000 - $170,000 = $55,000

NCI share of equity at acquisition date:
NCI = Fair Value of Net Assets x NCI % - NCI share of goodwill
NCI % = 20% (as 100% - 80% = 20%)
NCI share of goodwill = $55,000 x 20% x 30% = $3,300
NCI share of equity = ($170,000 x 20%) - $3,300 = $31,400

Therefore, the NCI share of equity at the date of acquisition was $31,400.

Jiminez Limited Acquired 80% of the Shares in Mustang Limited