A question about intercorp Investment; it dosent seem consis question, Investment, acquired

pawn

I have a question for number 26 in Intercorporate Investments. It asks for the long term debt to equity ratio for the equity method and the consoliation method.
For the consolidation method the book uses 1000/1750
The 1000 is the combined debt of the 2 comanies
The 1750 is the 1430(equity of Acquirer ex. Nina ) + 350 the noncontrolling interest.
In sch it say the non controlling interest amt should be .50 (amt not owned) * equity of acquired company (boswell), which in this case would be 580 =(535 com stock +45 RE)
and the noncontrolling interest would be .50 *580 =290
But instead of the 290, CFA uses 350 as the noncontrolling interest amt, which is the amt that the acquiring co (Ninmount) paid to buy and investment in the acquired co (boswell).

spartan1

it isn’t goodwill in this question.
it is the fair value of licenses …

economicz

in this case I recommend you to read CFAI Book 2 page 43, 6.4.3 Noncontrolling (Minority) Interests
plus maybe
CFAI Book 2 page 38, 6.2.1 and page 39, 6.2.5
in the example the goodwill is zero

RealEstate_CFA

I am very confused at this point, all I am asking is: how did they come up with 320 as the minority interest? The problem is CFA say the min interest is 320, how did they calc that amt?

PalacioHill

some licenses are not considered as tangible assets if they don’t have a expiry date.
according to the new growth theory, the knowledge asset should not depreciate

d2rockstar

the licenses are not goodwill

svgleeson

oh, what cpk said is correct.
you should note when you calculate goodwill, you have to calculate fair value of net asset, which is implied by the “purchasing price” and the “ownership percentage”
e.g.
you buy a 50% stake by $100, then the implied fair value of the firm’s net asset(tangible) is 100/50%=200, base on which you can go on for goodwill.

bluejazzy

so your saying i should add 30 (licence/goodwill)+290(% of book value bought)=320

Londonrocks

this is full consolidation…
license was 30 with 50% ownership (based on equity method) - how much would it be with the full consol? 60$…

ramdabom

How I understand this:
you combine assets and liabilities at fair value plus any goodwill (in CFAI example full goodwill I think) and to have A=L+E you need to have minority int also booked with same principles, in this case because they bought 50pct it is the same amount they paid.
Say you (X) pay cash 100 for 50pct of a company (Y) and it is equal to fair values of assets and liabilities (so zero goodwill):
you combine in books of X 100 % of assets and liabilities of Y at fair values (say 300 assets and 100 liabilities)
assets are minus 100 cash plus 300 assets = + 200
liabilities are plus 100
to have A=L+E you need to add 100 to minority interest
when the goodwill is not zero, then there is the full or partial goodwill issue