Reading 21 EOC no 26 320, interest, purchase, solution

wizofoz

Hi, I need help with the acquisition method. In this example, NinMount paid 320M to purchase 50% share of Boswell. It also said that the excess amount is attributed to unrecorded licenses. I know this means that when the financial statement is consolidated, we need to mark up the value of the assets of Boswell. So, the implied value of the equity of Boswell is 320 * 2 = 640M. This matches the amount of minority interest calculated in the solution (0.5 * 640M). However, I am still confused on the full picture of the consolidated balance sheet when this event happens. Which section of the equity should we increase by 60M (640-580)?
Thanks for any help.

Finalnub

Thanks for the replies. It is clear now. I was initially confused on how to modify the BS of Boswell due to the asset increase. But I finally figured out that we don’t need to do that since we only need to consolidate the BS of the acquiring company.

LorrinCFA

1. Note that in this example, there is no Goodwill. ALL of $60 of extra value, over the Fair Value of Identifiable Net Assets has been recognized as that coming from previously unvalued Licenses. So, this $60 will be reported in the consolidated B/S as an Identifiable Asset and not as Goodwill.
2. So, in this particular case, Equity reported under Full Goodwill will be the SAME as that reported under Partial Goodwill.
3. A = L + E
Asset Side will increase by 580 of Net Assets (though they will be reprted not as NET but will full details) from Boswell + 60 from Licenses = 640
Corresponding Increase in the Equity Side will have 2 components:
320 - Equity of NinMount
+
320 - Non-Controlling Interest in Boswell
——
640
——
PS: We could discuss another example that does get Goodwill upon Acquisition and then we could see how Equity side is accounted for under both Full Goodwill and Partial Goodwill methods.

bkballa

Total assets under IFRS consolidation are equal to:
2,140 NinMount total assets
- 320 Investment in Boswell
+ 1,070 Boswell total assets
+ 60 licenses
= 2,950.