Jiminez Limited acquired 80% of the share capital and reserves of Mustang Limited for $180 000. Share capital was $100 000 and reserves amounted to $50 000. All assets and liabilities were recorded at fair value except buildings which was recorded at $10 000 below fair value. The fair value of the NCI at the date of Jiminez's acquisition was $35 000. If the company tax rate was 30%, and the partial goodwill method was adopted, the NCI share of equity at the date of acquisition was:
A) $30 000
B) $31 400
C) $35 000
D) $43 000.

Question

Quizplus · Accepted Answer

NCI share of equity = Fair value of NCI share x (1-tax rate)
Fair value of NCI share = (1- Jiminez percentage ownership) x fair value of net assets
= (1-0.8) x ($100,000 + $50,000 - $10,000) = $28,000
NCI share of equity = $28,000 x (1-0.3) = $19,600
Thus, the NCI share of equity at the date of acquisition was $31,400 ($19,600 + $11,800). Therefore, the correct answer is B.

Jiminez Limited Acquired 80% of the Share Capital and Reserves