FRA 16: Calculating New Shareholder's Equity on a Business Combination when Purchase Price Exceeds Fair Value

CFA Level II FRA
#1

Hello,

I haven’t found a clear answer on this when googling/searching the forum. Would someone clarify how to calculate shareholder’s equity when the purchase price exceeds fair value?

I ran into an EOC problem (Chp 16, #26) in which the purchase price exceeds the fair value. I didn’t understand how the new shareholder’s equity was calculated.

Investor Equity + Investee Equity + (Minority Interest) is how I normally think of it, but how do you factor in the excess?

#2

It’s parent’s equity plus minority interest.

Under all circumstances.

#3

Thank you!

#4

My pleasure.