Tinyton Company acquired 70% of Lauderdale Corporation for $3,300,000. The total fair value of Lauderdale' identifiable net assets was $3,650,000. The book value of Lauderdale' land and equipment were undervalued by $100,000. The equipment had a ten-year useful life. The book value of Lauderdale' other assets and liabilities were equal to fair value.

Required:  Determine the amount of goodwill associated with Tinyton Company's purchase of Lauderdale Corporation.

 

Goodwill is the excess of the amount given by the parent (Tinyton in the problem) in exchange of the fair value of net assets (3,650,000 + 100,000) of the subsidiary (Lauderdale in the problem). If the fair value of net assets of the subsidiary is higher than the amount given by the parent, the result would be gain on bargain purchase. Gain on bargain purchase because the acquirer or the parent acquires the fair value of net assets at a lower price. There's something to be remembered in computing goodwill. The partial and full goodwill computation. If the problem is silent whether what method to be used in computing goodwill just like this problem, the method to be used in calculating value of NCI which is one of the component of consideration transferred is fair value of NCI using implied goodwill. This is computed by pro-rating the purchase price to become 100% and the NCI percentage is just a balancing figure but if the problem provides fair value of NCI, that fair value given should be used in computing goodwill. The other method is proportionate of net assets. Proportionate of net assets is computed by multiplying fair value of net assets and NCI percentage and the goodwill result if this method used is partial goodwill which is only for the parent. The acquirer will be called as parent if the acquirer acquires MORE THAN 50% OF THE BUSINESS.

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