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).

tikfed

Please help in answering this Q

justin88

You should note the following point regarding the treatment of non controlling (minority) interests on the balance sheet.
IFRS and U.S GAAP have converged on how non controlling interests are classified on the balance sheet. Both now require non controlling interests in consolidated subsidiaries to be presented in consolidated balance sheet as a separate component of stockholders equity.
Previously companies using IFRS reported non controlling interests as equity, whereas companies reporting under U.S GAAP reported non controlling interests either as liabilities or between liabilities and equity(mezzanine section).
Therefore, as a result of this adjustment Equity reported under the acquisition/comcolidation method will be higher as compared to the equity reported under equity method and proportionate consolidation method.
Schweser has written in Book 2, Page 30 that all three methods report the same equity.This is an incorrect statement.
Hope that explains :-)

RepoToronto

What I am actually asking is, How they did come up with that number 320?
I realize that amt is the total amt they paid to own part of it. But schweser says minority interest is supposed to calced (percentage of co owned *equity of co you want to invest in). If this is so the number should be 290. I am just trying to understand how they came up with the 320 number

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

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$…

bluejazzy

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

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.

d2rockstar

the licenses are not goodwill

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