You know when you get one of those questions that when you go back to the book you still can’t understand?!
Got this beauty from the practice questions which is f*cking p*ssing me off. It’s question number 4.
I understand the correct answer (100% of the subsidiaries debt), but if a company owns 50% of another company, and it uses the consolidation method, won’t 50% of the equity of the subsidiary be reported as minority interest on the balance sheet?
Any help would be great, thanks!
the equity value may not be correct… the fair value of net assets (equity) at acquisition may have exceeded their book values and therefore the equity amount would have needed ot be adjusted. Therefore there is insufficient information in the question to just assume that taking 50% of equity is appropriate for your minority interest…
the obvious answer is the 40k debt though which cannot be wrong…
Thanks - I think your reasoning is good. These sort of questions will tear me up on exam day!
Cheers again…