Homework Answers
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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consisted of $120,000 common stock and $60,000 retained earnings.
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($176,000 / 80%). The company assigned the $40,000 excess fair
value to previously unrecorded patents with a 10-year useful
life.
Parent Co’s $36,800 income from Sub Co for 2018 consisted of 80%
of Sub Co’s $50,000...
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