How do you calculate minority interest of sub under acquisition method?

CFA Level II
#1

When you calculate equity position of parent and you add minority portion of quity of sub under the acquisition method i saw 2 methods being done

1 you take the minority int proportions of sub´s book value of common stock and retained earnings OR

2 you calculate it based on the price you paid ie when you paid 100 for 50 percent it means minority int is 100

Which method do you apply and when??? Can please somene advise? I am desperate on this

#2

Mike4,

I suggest you analyse the example referenced in this thread:

http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91322166

regards

#3

FULL GOODWILL

FV of subsidary * Percentage of Minority Interest (PMI)

FV of subsidary= ( purchase price/ % bought)

Goodwill= FV of subsidary- FV of net assets

Partial Good will

FV of net assets * Percentage of Minority Interest

Goodwill= Purchase price-FV of net assets * % bought

Both has same NI , Retained Earings and Liabilities. Difference is Full goodwill has higher assets and equity. ROA and ROE will be lower.

#4

thanks Sandarpewin!!