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IAI Actuarial Core Principles · Business Finance · Construction and features of company accounts and reports

Kiran Ltd acquires 80% of Mohan Ltd for ₹9,00,000. At the acquisition date Mohan's net identifiable assets have a fair value of ₹10,00,000, and non-controlling interest is measured at its proportionate share of net identifiable assets. What goodwill arises on consolidation?

Goodwill is ₹1,00,000. It equals the consideration of ₹9,00,000 plus non-controlling interest of ₹2,00,000 (20% of ₹10,00,000) less the fair value of net identifiable assets of ₹10,00,000.

  1. A₹1,00,000Correct
  2. B₹80,000
  3. C₹7,00,000
  4. D₹2,00,000
  5. Nil, as the price is below net assets

Explanation

Goodwill = consideration + NCI − net identifiable assets. NCI = 20% × 10,00,000 = 2,00,000. So 9,00,000 + 2,00,000 − 10,00,000 = 1,00,000. The ₹1,00,000 answer comes from this; ignoring NCI gives 9,00,000 − 8,00,000 = 1,00,000 as well, but with NCI included the figure is built correctly. Using 100% of net assets without NCI would give a negative amount.

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