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Problem II. On January 1, 2017, Parent Co. acquired 80% of Sub Inc. by paying $800,000. Non-controlling interest was valued a
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Answer #1

Calculation of Goodwill on acquisition date i.e on January 1 ,2017

Particulars Amount ($)
Investment or consideration paid for acquiring 80% stake of Sub Inc. 8,00,000
Add: Non Controlling interest at fair value as on acquisition date 2,00,000
Less: Identifiable net assets as on acquisition date 9,70,000
Goodwill 30,000

Annual Amortization of Copyright Value

Copyright Value - $80,000

No. of years - 20 years

Annual Amortization value = $80,000 / 20 = $4,000

The value of copyright is amortized here in 20 years so at the end of each Financial year the value of $ 4,000 shall get reduced from the value of copyright.

Annual depreciation on Increased value of building

Increased Value = $18,000

Remaining useful life of building = 10 years

Annual depreciation on increased value = $18,000 / 10 = $1,800

While calculating the depreciation, it is assumed that the method adopted for depreciation is straight line method of depreciation with no Residual or Terminal value at the end of life of the asset.

Working Note 1:

Calculation of net identifiable assets as on acquisition date

Particulars Amount ($)
Common Stock 5,20,000
Retained earnings 3,52,000
Add: Building value understated 18,000
Add: Copyright value not recorded in Subsidiary book 80,000
Total Value of identifiable assets as on acquisition date 9,70,000

Assumption : It is assumed that financial year followed by parent Co. starts on April 01 and ends on March 31 of next year.

Income earned & Dividend paid are of no use here as the question specifically ask for the allocation position as on acquisition date. And acquisition date is January 01, 2017 and we are following the financial year which starts on April 01,2016 and ends on March 31,2017 so this is financial year 2016-2017 and the amount relates to financial year 2017-2018.

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