[Hammer]

I get almost every non-controlling interest question wrong. I’m perfectly fine with all acquisition questions, unless NCI is involved. Can some please explain this shit in real talk?

On January 1, Year 1, Paul Corporation acquired 80% of Saul Corporation’s 200,000 shares of the outstanding common stock for $5,000,000. On the date of acquisition, the $6,000,000 book value of Saul’s net assets equaled the fair value of Saul’s net assets. During Year 1, Saul reported net income of $550,000 and paid dividends of $165,000. What is the noncontrolling interest that will be reported on Paul Corporation’s December 31, Year 1 consolidated balance sheet?

I completely understand that the NCI portion of net income and dividends are included in the calculation at year end. What I don’t understand is how the NCI is calculated at acquisition. If Saul’s BV = FV at the date of acquisition, then why isn’t the NCI just 20% multiplied by $6,000,000 at 1/1???????? Why and how in the hell is FV recalculated at $6,250,000 when fair value of Saul’s net assets is given in the problem. Punched my computer and stopped studying for the day…please help me understand.

THANK YOU!

FAR - 70, 81
AUD - 83
BEC - 77
REG - 70, 78

Licensed in Ohio.

Now what the hell do I do?

[Hammer]

Is it because the fair value of the sub is more accurately determined using the acquisition price as opposed to the fair value given in the problem?

FAR - 70, 81
AUD - 83
BEC - 77
REG - 70, 78

Licensed in Ohio.

Now what the hell do I do?

[stoleway]

@mchammer…

The 600,000 FV of the asset is NOT the implied value of the Subsidiary, you have to understand that Saul was holding equity accounts before the company was bought, but in consolidation the Parent company will wipe off its equity accounts but still have to report the equity account of outsiders which is the NCI.

To find the implied value of the subsidiary divide $5,000,000 by 80% = 6,250,000 (this is the total value of the companys asset, liabilities and NCI). All asset and liabilities belongs to the PARENT and NCI belongs to outsiders which is 20%.

hope this helps.

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Mr. Dim]

Does this problem specify whether full goodwill or partial goodwill method is used? Since there is $250,000 implied goodwill (6,250,000 – 6,000,000), you need need to know this in order to value the NCI correctly. This might be throwing you off.

If full goodwill method is used, NCI would get a piece of the 250,000, so Jan 1 NCI = 6,250,000 x 20%

If the partial method is used, NCI is not allocated any of the implied goodwill, so Jan 1 NCI = 6,000,000 x 20% (as you indicated in the original post.) Total goodwill on the consolidated B/S would just be the parent's share, 200,000 (250,000 x 80%)

@stoleway…I think this is what you mean, just want to clarify for OP:

6,250,000 = FV of assets (including goodwill) – FV liabilities = Parent Equity in Sub + NCI

Parent owns 80% of the 6,250,000, NCI owns 20%.

(Again, 6,250,000 is assuming full goodwill method is used.)

I hope that helps/makes sense…I've been studying for REG all day, so my brain is fried!

FAR - 95
AUD - 98
REG - 92
BEC - 10/4/14

[Mr. Dim]

FAR - 95
AUD - 98
REG - 92
BEC - 10/4/14

[stoleway]

There could be a goodwill or bargain purchase gain.

Amount paid for acquisition

+NCI

(FV of net Assets)

=GOODWILL OR GAIN

If amount paid + NCI is greater than FV of Net asset, there is a goodwill

If amount paid + NCI is less that FV of Net Asset, there is a bargain purchase gain.

In this case there is a goodwill of $250,000 but NCI still remains $1,250,000

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[Mr. Dim]

@stoleway

Agreed. The point I was going to make is that you need to value goodwill or gain before calculating NCI..(because it could be partial or full goodwill method – hence, my original question.) BUT then I realized GAAP is only full goodwill….IFRS has the option using full or partial goodwill. Stupid IFRS! Now that I'm past FAR, perhaps I should try to erase all IFRS from my memory! haha

FAR - 95
AUD - 98
REG - 92
BEC - 10/4/14

[Author]

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