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ACCA · Question 38 · Preparing Simple Consolidated Financial Statements
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the Goodwill arising on acquisition (in $ millions).
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the Goodwill arising on acquisition (in $ millions).
How to approach this question
Goodwill = Consideration + Fair Value of NCI - Fair Value of Net Assets at acquisition. Goodwill = $7m + $1.5m - $6m = $2.5m.
Full Answer
Goodwill is calculated as: Consideration transferred ($7m) + Fair value of NCI at acquisition ($1.5m) - Fair value of identifiable net assets at acquisition ($6m). $7m + $1.5m - $6m = $2.5 million.
Common mistakes
Forgetting to add the NCI, or using the proportionate share of net assets instead of the fair value method.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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