Goodwill With Noncontrolling Interest | $75,000 Acquisition Example

Calculate goodwill when a parent buys 80% of a business and the fair value of the noncontrolling interest is given. This advanced accounting practice question helps CPA BAR candidates and accounting students distinguish book value, identifiable net assets, the plant-asset fair-value adjustment, and goodwill. Worked answer: $75,000 goodwill 1. Consideration paid for the 80% interest: $975,000. 2. Fair value of the remaining 20% noncontrolling interest (NCI): $200,000. 3. Aggregate used in the goodwill calculation: $1,175,000. 4. Book value of net assets: $1,000,000; add the $100,000 plant-asset fair-value adjustment. 5. Identifiable net assets in this fact pattern: $1,100,000. Goodwill = $975,000 + $200,000 − $1,100,000 = $75,000. What is goodwill? Goodwill is the residual recognized in a business combination after the required acquisition-date measurements of identifiable assets and liabilities. The introductory illustration pays $90 for $70 of identifiable net assets, leaving $20 goodwill. For this partial acquisition, include BOTH the parent's consideration and the fair value of NCI. NCI is not additional consideration paid by the parent. A general U.S. GAAP acquisition-method calculation also includes any previously held equity interest at acquisition-date fair value; none is specified in this problem. Important corrections • Around 2:40–2:55, do not automatically put customer lists, customer relationships or brands into goodwill. Identifiable acquired intangibles that meet the contractual-legal or separability criteria are recognized separately under the general acquisition method. The video does not examine accounting alternatives for eligible private companies. • Around 5:41–6:24 and 9:11–9:50, $975,000 ÷ 80% = $1,218,750 is only a proportional extrapolation. It is NOT the value used in this problem and is not a universally valid way to measure NCI. Control premiums or discounts for lack of control can make per-share values differ; the stated $200,000 NCI value need not be inconsistent. • Around 7:09, subtract book value FROM the $1,175,000 aggregate: the excess is $175,000. Assign $100,000 to the plant step-up and the remaining $75,000 to goodwill. • The alternative explanation around 8:22–8:56 mixes the parent's 80% share of book value with the full 100% plant step-up. It happens to produce the same number here; use the complete acquisition calculation above instead. • The plant's fair value is $100,000 ABOVE carrying amount, not necessarily $100,000 in total. “Fair value” is the accounting measurement term; net identifiable assets are not the entire economic value of a business. • The problem's 2006 date is historical. This walkthrough follows its stated fair-value-NCI assumptions; it is not an analysis of the accounting rules applicable to an actual 2006 transaction. Exam and lesson scope The January 2026 CPA blueprint places goodwill measurement and business combinations in BAR. This video was recorded in 2020; check the blueprint for your testing date: https://www.aicpa-cima.com/resources/... This is a worked question sent by a subscriber, not identified as an official released exam item. It does not work goodwill impairment, amortization, deferred taxes, or a full consolidation worksheet. Chapters 00:00 Goodwill practice-question overview 00:33 What goodwill means 01:10 Net assets: assets less liabilities 01:49 Simple $90 purchase and $70 net-assets example 03:03 The 80% acquisition fact pattern 03:38 Adjust plant assets to fair value 04:33 Use the stated noncontrolling-interest value 05:41 Gross-up discussion: important limitation 06:46 Return to the stated acquisition amounts 07:09 Separate the plant step-up from goodwill 07:59 Alternative approach: correction needed 09:11 Revisit the gross-up shortcut 10:11 Further study resources Continue learning Acquisition-date consolidation and goodwill:    • Acquisition-Date Consolidation & Goodwill ...   Advanced accounting course:    • Advanced Accounting Full Course | Universi...   Additional practice and resources: https://farhatlectures.com #Goodwill #BusinessCombinations #CPABAR