Parent Co. buys 80% of Sub Co. for $800,000. The Fair Value of the Non-Controlling Interest (NCI) is $200,000. The Fair Value of Sub's identifiable net assets is $900,000. Under US GAAP, what amount of Goodwill is recognized?

Answer options:

$100,000

$80,000

$200,000

How to approach this question

Full Goodwill = (Price Paid + FV of NCI) - FV of Net Assets.

Full Answer

A.$100,000✓ Correct

US GAAP requires the Full Goodwill method. Goodwill is the difference between the Fair Value of the whole entity (Acquisition Cost + FV of NCI) and the Fair Value of identifiable net assets.

Common mistakes

Using the Partial Goodwill method (Cost - Share of FV Net Assets), which is allowed under IFRS but not GAAP.

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