Parent plc acquires 80% of the ordinary shares of Sub Ltd for £500,000. At the date of acquisition the net assets of Sub Ltd were £450,000 at fair value. Non-controlling interest is measured at its proportionate share of net assets. What is goodwill on acquisition?
Answer and explanation
Correct answer: B. £140,000
- Step 1: Goodwill = consideration + NCI − fair value of identifiable net assets.
- Step 2: NCI (proportionate) = 20% × £450,000 = £90,000.
- Step 3: Goodwill = £500,000 + £90,000 − £450,000 = £140,000.
Answer
£140,000.
Why not the others: £50,000: This compares the cost to 100% of net assets, although the parent bought only 80%. £590,000: This adds the NCI of £90,000 to the consideration but forgets to deduct the net assets acquired. £360,000: This is the parent's share of net assets and not the goodwill.
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