Skip to content

CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Financial Reporting

Case: Prakash Ltd. acquired 80% of Tara Ltd. on 1 April 20X1. On that date Tara's net identifiable assets at fair value were Rs 500 lakh. Prakash paid Rs 460 lakh for the 80%. Prakash elects to measure non-controlling interest (NCI) at its proportionate share of net identifiable assets. What goodwill arises on consolidation?

Goodwill is Rs 60 lakh. It equals the consideration of Rs 460 lakh plus NCI at proportionate share of Rs 100 lakh, less net identifiable assets of Rs 500 lakh. Using the full Rs 500 lakh against only the parent's payment would wrongly give Rs 40 lakh.

  1. ARs 60 lakhCorrect
  2. BRs 40 lakh
  3. CRs (40) lakh, a bargain purchase gain
  4. DRs 0

Explanation

Goodwill = consideration + NCI - net identifiable assets. NCI = 20% x 500 = 100. So 460 + 100 - 500 = 60 lakh. Rs 40 lakh wrongly ignores NCI and deducts only the parent's share of net assets (460 - 400 = 60 is actually the same here), but the Rs 40 lakh figure comes from 500 - 460, ignoring the 80% proportion.

Did you get it right without looking?

One question tells you little. A timed set on Financial Reporting shows your real accuracy, how long you take and where you lose marks.

Practise Financial ReportingFree diagnostic mock

More Financial Reporting questions