Calculate minority interest and goodwill from the following:
| Particulars | 'H' Ltd |
|---|---|
| Share capital of ₹ 10 each | |
| H Ltd acquired 4/5 of share of S Ltd on 1/4/2012 | 10,00,000 |
| Reserves on 1/4/2012 | 40,000 |
| Profit on 1/4/2012 | 20,000 |
| Total reserve on 31/3/2013 | 60,000 |
| Total profit on 31/3/2013 | 30,000 |
Answer (2)
To determine the minority interest and goodwill, we'll follow a step-by-step approach.
1. Calculate Minority Interest:
Minority interest represents the portion of the subsidiary, 'S Ltd,' that is not owned by 'H Ltd.' Since 'H Ltd' acquired 4/5 of the shares, the minority interest is 1/5.
Let's calculate the minority interest at the acquisition date (1/4/2012):
Share Capital of 'S Ltd': ₹ 10,00,000
Percentage of Minority Interest: 1/5 (20%)
Minority Interest = Share Capital × Minority Percentage
Minority Interest = 10 , 00 , 000 × 5 1 = 2 , 00 , 000
2. Calculate Goodwill:
Goodwill is the excess of the purchase price over the fair value of the net identifiable assets acquired.
First, determine the net identifiable assets at the acquisition date (1/4/2012).
Share Capital of S Ltd: ₹ 10,00,000
Reserves on 1/4/2012: ₹ 40,000
Profit on 1/4/2012: ₹ 20,000
Net Identifiable Assets = Share Capital + Reserves + Profit
Net Identifiable Assets = 10 , 00 , 000 + 40 , 000 + 20 , 000 = 10 , 60 , 000
Calculate the part of net assets acquired by 'H Ltd':
Share of 'H Ltd': 4/5 (80%)
H Ltd’s Share of Assets = 10 , 60 , 000 × 5 4 = 8 , 48 , 000
Since we assume that 'H Ltd' paid exactly for their share in the net assets, the purchase price equals their share in the net assets. Therefore, in this scenario, no goodwill arises as purchase consideration equals the share in net identifiable assets.
However, if the purchase consideration given to acquire 80% was different, goodwill would be calculated as follows:
Goodwill = Purchase Price (if given) − H Ltd’s Share of Assets
Thus, without additional information about a different purchase consideration, we assume no goodwill is generated.
The minority interest calculated from the acquisition of 'S Ltd' by 'H Ltd' is ₹2,00,000. Goodwill cannot be determined unless the purchase price exceeds ₹8,48,000; if it equals that amount, then there is no goodwill. Thus, minority interest is clear, but goodwill depends on the purchase consideration.
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