Intercorporate investments non-controling interest on Balance sheet

Hi everyone,

I have a question regarding the calculation of minority interest on balance sheet.

According to Schweser notes, under the acuquisition method, the noncontrolling interest is calculated by multiplying the subsidiary’s quity by the percentage of the subsiiary not owned by the parent.

In CFA level 2 curriculum, page 169, questions 26. in calculating long term debt/equity, the solution uses 1000/1750 and equity (1430+320) includes 320 non-controlling interest.

I don’t undestand why 320 is the non-controlling interest. My calculation is 0.5*(535+45)=290. Because 535+45=580 is the subsidiary’s equity. Since the parent owns 50% of the subsidiary, the percentage not owned is 1-0.5=0.5.

Could somebody please explain to me why the curriculum uses 320? From the information given, 320 is the purchase price. I don’t know why this is the non-controlling interest?

Thanks in advance!

I can’t speak for schweser, but I would suggest looking at the reading on p. 147 for specific mechanics.

In this example you can’t use subsidiary balance sheet equity because the licenses aren’t represented on balance sheet. But the purchase price represents the fair value of all assets, which is why 50% of this number is used.

Read the solution again (last sentence)! this question has been asked before:

There is no Goodwill created here (the licenses are being amortized) and Goodwill is NOT amortized.

Since No Goodwill -> Partial Goodwill/Full Goodwill doesn’t matter and the S.E. in both case will be the same. What you are proposing is applicable only when goodwill is created, so this the twist in the question.

Well I don’t see how goodwill is related here. In the example on Schweser book 2 page 82, there is no goodwill created there. It is just an example of how two companies are combined together under equity or acquisition method. And under the aquisition method, the non-controlling interest is calculated by multiplying the percentage of the subsidiary not owned by the parent by the subsidiary’s equity…

Not 50% of that number, but the entire amount of 320 is used. Solution says long-term debt to equity is 1000/1750. 1000 is the sum of long-term liabilities of the two companies; 1750 is the sum of 1430 (Parent company’s equity) and 320, the purchase price.

320 represents 50% of the firms net assets also

Bingo! Net assets = equity.

Minority interest = % not owned x subsidiary’s equity*

*subsidiary’s equity not per reported BS but per MV of their assets/liability (including any goodwill).

I will stay away from replying any further- but if it was Problem-26 of EOC, then it was about goodwill (Partial goodwill & Full goodwill methods)

unless it was a question from Scheweser which i dont know abt. sorry.