The Statements of Financial Position for company P and company S are shown below:

At the time of the acquisition,the net asset value of S was £50,000.This was £40,000 share capital plus £10,000 retained earnings.If company P owns 75% of Company S,then the consolidated Statement of Financial Position will include,as well as 100% of the assets and liabilities of both companies:
A) £50,000 which represents 100% of the goodwill on the purchase of S
B) £37,500 which represents 75% of the goodwill on the purchase of S
C) £25,000 which represents 50% of the goodwill on the purchase of S
D) Nothing

Question

The Statements of Financial Position for company P and company S are shown below:

At the time of the acquisition,the net asset value of S was £50,000.This was £40,000 share capital plus £10,000 retained earnings.If company P owns 75% of Company S,then the consolidated Statement of Financial Position will include,as well as 100% of the assets and liabilities of both companies:
A) £50,000 which represents 100% of the goodwill on the purchase of S 
B) £37,500 which represents 75% of the goodwill on the purchase of S 
C) £25,000 which represents 50% of the goodwill on the purchase of S 
D) Nothing

Quizplus · Accepted Answer

When S was acquired, it had a net book value of £50,000. P paid £75,000 for 75% and so the total value of the acquisition is £100,000. Goodwill is therefore £50,000. In the consolidated statement, 75% of 50,000 is shown: £37,500. Calculations shown below:
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The Statements of Financial Position for Company P and Company