- Regarding acquisition method, “Net income the same but revenues and expenses higher than equity method”.
Why is net income the same? Ignore taxes and interests, if the acquirer has revenues of 100 and expenses of 50, net income would be 50. If target has revenues and expenses of 25 and 10, respectively and you consolidate that with the acquirer’s, net income would be 65 (125 – 60).
- Regarding non-controlling interest (NCI), what is the intuition behind add this to the equity section of the balance sheet of the acquirer? NCI is the portion of the target company that the acquirer does NOT control, right?
So in example 9 of volume 2 (pg 145), the fair value of target is 200,000. Target buys 90%, which means 10%, or 20,000 (under full goodwill) is listed on the consolidated balance sheet. Why?
NCI is subtracted from the income statement because that portion does not belong to the acquirer, which makes sense to me.