Acquisition Method with Full or Partial Goodwill

A

archived_user

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Hello Everyone,
I have been struggling with this question. I would appreciate any help. Thank you.
Assume that on the balance sheet date shown below TME Corporation acquires 70% of Abcor, Inc. common stock for $25,000 in cash.
Pre-acquisition Balance Sheets
December 31, 2001
TME Corp. Abcor, Inc.
Current assets $80,000 $38,000
Other assets 28,000 15,000
Total assets $108,000 $53,000
Current liabilities $60,000 $32,000
Common stock 15,000 14,000
Retained earnings 33,000 7,000
Total liabilities and equity $108,000 $53,000
What will be the post-acquisition balance sheet values of TME Corp. under
  1. Equity method
  2. Full Goodwill acquisition method
  3. Partial Goodwill acquisition method
 
*Warning, this is just an attempt, it may well be wrong*

1. Equity method
- Reduce TME Corp Cash (Current Assets) by 25k as they spent this on the investment
- Create a non-current Asset, “Investment in Abcor Inc” which is 70% of net Assets on TME Corp (0.7*(53k-32k)), 14.7k.
- There is an excess of Purchase Price over book value (25k - 14.7k = 10.3k). Now this is where I’m a little confused, I’d expect a fair value schedule for the assets so you we can attribute some of the excess purchase price to the assets, but in the absence of that the whole 10.3k should go to “Goodwill - Residual”.
Summary:
- Reduce (Credit) Current Assets by 25k
- Create Investment in Abcor account and Increase (Debit) by 14.7k
- Create Goodwill account and Increase (Debit) by 10.3k
Was this correct? If So I’ll have a go at the next two….If not please share what was the correct answer.
 
Thanks Kman2001! This is from the Schweser question bankon FRA and they didn’t provide the completed balance sheets.
What you are saying makes sense for part 1. I was thinking that 25k should go into the investment account in Abcor and have it as a single line entry for equity method. Reduce the current assets by 25k. I am not sure whether we would have multiple entries with goodwill shown separately for equity method.
For acquiistion method (part 2 and 3), i think full goodwill will be (25000/0.7) - 14000 = 21714, partial goodwill will be 25000 - (0.7*14000) = 15200.
What do you think?
 
Do you have the question ID for this one in Kaplan QBank?
I agree with your Equity method comment as all the goodwill etc will be netted into one line item, but to get Full and Partial Goodwill, all the examples I have seen normally tell you what the fair value of net assets are rather than making you assume it is the difference between what appear to be the book values.
Nonetheless if you are assuming FV=Book Value for all the assets maybe we can have a shot.
I don’t understand where you got the 14k from?
I thought to calculate full goodwill we would have ((25/0.7)-FV of net Assets))
And for Partial Goodwill we would have ((25-(0.7 * FV of net Assets))
Let me know what you think..I may well be talking rubbish.
 
You are right. That was a typo from my part. I forgot to add the retained earning (7000) to the common stock (14000). It should have read
(25000/0.7) - 21000 for full goodwill
25000 - (0.7*21000) for partial goodwill.
This is the question id: 89474
It would be great to see the full balance sheet for aquisition method under full and partial goodwill.
 
Ah, ok I’ve checked out the question ID. I guess you adjusted a bit to pose your own question, which explains why no comment on FV.
I think what you’ve just posted is correct though.
Agreed:
I think the steps would be:
1. Add Assets and Liabilities together by account.
2. Reduce the Cash made for the purchase from current assets.
3. Add in the Goodwill we calculated, to an Asset account (Full for US GAAP, Partial or Full for IFRS)
4. Calculate Minority Interest component, typically a component of Equity (Although can be a Liab under US GAAP).
-Minority Interest Calc with Full Goodwill under USG/IFRS
Fair Value * Portion of sub not-owned = 35,714 * 0.3 = 10,714.29
-Minority Interest Calc with Partial Goodwill (IFRS only)
Fair Value of sub’s identifiable net assets * Portion of sub not-owned = “In our hypothetical question where we assume FV of net assets = Book Value on BS” = 21k * 0.3 = 6.3k
Under US GAAP:
Current Assets - 118k - 25k = 93k
Other Assets = 43k
Goodwill = 14.71k
Total Assets = 150.71k
Current Liabs = 92k
Common Stock = 15k
Retained Earnings = 33k
Minority interest = 10.71k
Total Liabs & Equity = 150.71k
What do you think?
Would be great if someone can validate this..
 
Perfect!! Thanks a lot!
Here is my attempt with partial goodwill:
Under IFRS:
Current Assets - 118k - 25k = 93k
Other Assets = 43k
Partial Goodwill = 10.3k
Total Assets = 146.3k
Current Liabs = 92k
Common Stock = 15k
Retained Earnings = 33k
Minority interest = 6.3k
 
You must log in or register to reply here.
Back
Top