Quick question on non controlling interest equity, interest, question, target

LorrinCFA

If Company A with $1,000 of equity acquires a 70% stake in Company B which has $500 in shareholder equity.  Assume book value = faire value and no goodwill (but I dont think it matters for this).
If we consolidate what is the consolidated entity’s shareholder equity?
Is it $1000 + $350 (70% * $500) = $1350 ?
Or is it $1000 + $150 (non controlling interest of 30%) = $1150 ?
Trying to be sure about what happens to the target’s equity.

bchadwick

Is the exampl 9 - Reading 22 - pg 155 relevant? According to that, shouldn’t the equity in this example be 1500?

Analti_Calte

optix, I believe it is included in the consolidated BS. Thus, lowest ROE out of the 3 methods.

AnalystForum

optix: just think of it as you never adjust equity under any of the methods however for acquisition since you combined the TOTAL A + L of the target, you must add the non controlling interest to equity to make the equation balance – so it becomes higher than both equity and proportional consolidation.
this then makes things like ROE lower, etc.

JonnyKay

I was going to add that but did not want to complicate things. Assuming purchase includes issuing shares:
Consolidated Equity = Parent E + Minority Interest +New Shares Issued

LorrinCFA

Oh my gosh I’m so sorry I was thinking about the income statement.  I really should’ve been more thoughtful.  You subtract out minority interest earnings on the income statement but the minority interest account on the b/s is the portion of the company’s equity you do not own.

brazilatz

Wow, a lot of confusion  2 days before exam.  Do we have a consensus?  I cannot find a concrete example in the readings.

Analti_Calte

what?
anyways, go to p.79 of schweser. don’t make it harder than it is.

tango_gs

Would it not depend if you issued stock to go forward with the acquisition or if you simply paid in cash? If you have to issue stock to buy them, then it means your shareholder’s equity rises by the purchase price and then you add MI on top… ARe we always to assume that they pay cash?

draz

lemiman, thank you for confirming. thought I was going crazy for a second.