Question 1

SCENARIO: On 1 January 20X5, Horizon Renewables (a public utility) acquired 80% of the equity share capital of WindTech Innovations (a tech startup) for $5,000,000. Non-controlling interest (NCI) is measured at fair value, which was $1,100,000 at acquisition. WindTech's net assets at acquisition were $4,500,000 (which included a fair value uplift on patents of $500,000). During the year, Horizon sold turbines to WindTech for $800,000 at a 25% mark-up on cost. Half of these remain in inventory at year-end (31 Dec 20X5). Horizon's receivables include $150,000 due from WindTech, but WindTech's payables show $100,000 due to Horizon (the difference is cash in transit). WindTech's profit for the year was $600,000 (assume no extra depreciation on the patent).

Calculate the Goodwill arising on acquisition. (Enter the number only)

Accepted Answer

Goodwill = Consideration transferred + Fair Value of NCI - Fair Value of Net Assets at acquisition.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Forgetting to add the NCI, or calculating NCI as 20% of net assets instead of using the given fair value.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 3

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