- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 10. Intercorporate Investments
- Subject 5. Business Combinations
CFA Practice Question
Richardson, Inc. purchased 80 percent of Frankfort Enterprises at market value. At the acquisition date, Richardson's equipment had a market value of $380,000 and a book value of $250,000, while Frankfort's equipment had a market value of $82,000 and a book value of $60,000. What is the equipment account purchase differential included on the acquisition date consolidated balance sheet under the acquisition method?
B. $17,600.
C. $130,000.
A. $22,000.
B. $17,600.
C. $130,000.
Correct Answer: A
User Contributed Comments 5
| User | Comment |
|---|---|
| NufaNka | Frankfort's equipment market value 82k, book value 60k. 82k - 60k = 22k. |
| danlan2 | In consolidated balance sheet, 80 percent is not used. I think 20 percent is reported as minority interest. |
| ssradja | good point |
| vi2009 | Good question! Refer to p37-38 (e.g. 10) very similar. Note that IFRS & U.S.GAAP has different approaches to handling less than 100% acquisitions such as this case. IFRS: 100% of fairvalue. So for this question, the given answer seem to refer to IFRS. Hence the entire 100% fairvalue - 100% book value to find the difference. U.S.GAAP: 80% of fairvalue + 20% of the book value |
| davidt876 | vi's out here saving lives |