I’m looking at page 78 example on Allocation of purchase price over book value acquired.
In the example, we have two companies. Red (investor) and Blue (investee). The purchase price is $80K for Blue’s 30% ownership. Total book value of Blue is $200K. Red (Investor) bought 30% of that 200k, so it’s 60K. The difference of 20K is allocated to equipment and the rest is goodwill according to the example. On Blue’s balance sheet book value is equal to fair value for all identifiable assets, except equipment which is BV=25K and FV=75K. So the example follows that we take the difference of those two 50K times the % of ownership of Red and allocate that to equipment. So that will be 15K (50K*30%) and the rest to goodwill (5K)
Ok, now to my question, the Balance sheet of Red has and investment beginning balance of 80K (the purchase price). Is this 80K broken down to 60K (bv price), 15K (excess allocation) and 5k (goodwill)? If not, where does the 15K of excess allocated to equipment go? and the 5K in goodwill?