Question

Bee Shoes Inc recently acquired 75% of Tony Shoes Corp for $1,500,000. Below is a summary of

the balance sheet for Tony Shoes Corp at the date of acquisition.

  

Tony Shoes Corp - Summarised Balance Sheet (US$)
	Book Value	Market Value
Fixed assets (net)	2,678,000	2,425,000
Inventory	347,000	325,000
Other assets	869,000	875,000
Total assets	3,894,000
Liabilities	2,166,000
Shareholders’ equity	1,728,000
Total liabilities and shareholders’ equity	2,094,000

Tony shoes Corp also has the rights to their brand name which have not been previously recognised on their balance sheet. The estimated fair market value of the brand name is $400,000.

Required:

Calculate the value of the goodwill resulting from the acquisition of Tony Shoes Corp by Bee Shoes Inc.

Answer 1

Goodwill = Consideration paid + Value of non-controlling interest - Fair value of identifiable net assets

Consideration paid = $1,500,000 (given in question)

Calculation of fair value of identifiable net assets:

Particulars	Amount ($)
Fixed assets (net)	24,25,000
Inventory	3,25,000
Other assets	8,75,000
Fair market value of brand name	4,00,000
Total assets	40,25,000
Less: Liabilities	-21,66,000
Fair value of identifiable net assets	18,59,000

Value of non-controlling interest = 25% of fair value of identifiable net assets

Value of non-controlling interest = 25% * $1,859,000

Value of non-controlling interest = $464,750

Goodwill = $1,500,000 + $464,750 - $1,859,000

Goodwill = $105,750