So I’ve never come across a question regarding full/partial goodwill like this, and want to make sure I am understanding what to do in this scenario:
Company A acquires 80% of company B for $500,000. Company B’s fair value = $800,000 (stated explicitly within the question). Company B’s Fair Value of Net Identifiable Assets (FVNIA) = $300,000.
In calculating goodwill under the full goodwill method I would use the stated fair value of $800,000 - $300,000 (FVNIA) as opposed to the implied fair value from my purchase price: $500,000/.80 = $625,000 to calculate full good will of $500,000 ($800,000 - $300,000)?
I’ve always used the implied fair value as a question has never explicitly stated a fair value of the firm to be acquired (which differed from the implied fair value derived from the purchase price). Based on the answers to the question, I use the stated fair value (if explicitly given), otherwise, I use the fair value implied by the purchase price. Is this correct?
Edit: After I look up ASC 805 and other FASB sources, this is in fact NOT a bargain purchase because according to the definition “an acquirer may make a bargain purchase, a business combination where the acquisition-date amounts of identifiable net assets acquired, excluding goodwill, exceed the sum of the value of consideration transferred.” The definition is the same under IFRS and GAAP per FASB.
So I agree with you 125mph, but this question used the fair value listed in the question $800,000 as the basis for the calculation of full goodwill and I was thrown off. Good to know this was likely just an error.