The calculation of Goodwill and non-controlling interest (NCI) under the Entity Theory is derived :
A) by using an imputed acquisition cost, which would be the presumed cost of acquiring 100% of the outstanding voting shares of the subsidiary.
B) by using the actual acquisition cost.
C) by using the actual acquisition cost less any uncontrolled portion of the subsidiary's net assets at fair market value.
D)by using the actual acquisition cost less any uncontrolled portion of the subsidiary's net assets at book value.

Question

Quizplus · Accepted Answer

Under the Entity Theory, goodwill is calculated by using an imputed acquisition cost, which would be the presumed cost of acquiring 100% of the outstanding voting shares of the subsidiary. This is because under the Entity Theory, the parent company is seen as acquiring the whole entity of the subsidiary, rather than just a portion of its net assets. Non-controlling interest (NCI) is also calculated under the same imputed acquisition cost, as it represents the portion of ownership not held by the parent company.

The Calculation of Goodwill and Non-Controlling Interest (NCI) Under the Entity