Tough Valuation and accounting question. Help!!

Hi All,

Was wondering if anyone could help me with the question:

If a company A buys 80% of company B for $100, where Company B has a fair value of 100. What is the impact on the Balance Sheet? (Apologies if this is not enough info, If anyone could use some dummy numbers to illustrate the point I would be very grateful!)

I have an idea of income statement - everything consolidated and at the bottom for Net Income we subtract the 20% of Company B's Net Income from the consolidated Net Income.

For the Balance Sheet my thinking is it is fully consolidated. I also know Company B's shareholder equity gets written down. My understanding of Goodwill has always been it is the price paid above the sellers Shareholder Equity, so I am a little thrown by the term Fair Value.

My intuition is that you must find the cost of 100% of Company B ($125) and create a Goodwill entry on the assets side of the Balance Sheet of $25. Subtract $100 from Cash used to pay for the acquisition and add the $100 due to Company B's Fair Value? I also realise $25 of NCI should be creates on the L&E side of the Balance sheet. Struggling to put it all together. Any help would be hugely appreciated!

Thanks

 

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