Company A acquries 80% of Company B for $1,000. Company B’s fair value of identifiable net assets in $500. Under full goodwill, the goodwill added to Company A’s balance sheet is $1000 - $500 = $500. Under partial goodwill, the goodwill added to Company A’s balance sheet is $1000 - (500*.80) = $600. Do I have this right? The partial goodwill method actually leads to large goodwill for the acquirer? Seems counterintuitive.
No that’s not right.
Full = FV of Sub - FV of Net assets
=1000/0.8 - 500 = 750
Partial = Acquisition price - %ownership of Net assets
=1000 - 0.8 * 500 = 600
Also, who would pay a valuation of 1250 for a company with assets valued at 500?
And full goodwill is only permitted under US GAAP, correct?
No - full is required under GAAP. Partial is recommended under IFRS, but Full is accepted
Thanks.
Lol pearc it was made up in 30 secs, but thanks for answer got it now.