Could somebody help me understand the solution explanation in the CFAI Reading 19, Question 29. I don’t understand how the beginning equity under partial and full goodwill are both 1,750. When you combine the assets and liabilities of both the companies under each consolidation method, wouldn’t you get a higher equity? Or am I missing that you need to then subtract out the non-controlling interest which would then get you back to 1,750?
Thanks to anyone who can set my head straight!
The shareholders equity is the same for both partial and full goodwill in this case since the fair value of the entity is equal to net assets of the acquired company. In other words, there is no goodwill. To get shareholders equity in either case you would take Ninmount’s shareholders equity and add the minority interest of 320. This would get you an overall shareholders equity of 1750. Under the equity method, shareholders equity does NOT increase. It all comes down to the fair value of the entity equalling net assets. 640 is the value of the full acquisition (including minority interest ) which is also equal to 640, the value of net assets. Under partial or full goodwill method, the value of minority interest is the same. Hope this helps.
Very helpful, thanks a lot!