Answer to Question #165689 in Accounting for Ekta

Question

ABC Ltd acquires 100 per cent of RedCarpet Ltd on 1 July 2021. ABC Ltd pays the shareholders of RedCrpet Ltd the following consideration: There are also legal fees of $95,000 involves in acquiring RedCarpet Ltd.

On July 1 2021 RedCarpet Ltd’s statement of financial position shows total assets of $300,000 and liabilities of $150,000. The fair value of the assets is $400,000.

Has any goodwill been acquired and, if so, how much?

Answer 1

There is no goodwill acquired by the ABC Ltd since its value is negative as follows;

Goodwill = (Consideration paid + Fair value of non-controlling interests + Fair value of equity interests) – Fair value of net identifiable assets

Goodwill = $150,000-$400,000-$95,000 (Assets = Liabilities + Capital; hence, Capital is $150,000 and has been acquired 100%)

Negative Goodwill = -$345,000