Full goodwill method, Partial goodwill method, Pooling method

Preacquisition Balance Sheet Data

Company		V	V		G	G
in $ millions		Book value	Fair value		Book value	Fair value
Current assets		9,000	9,000		500	700
Noncurrent assets		7,500	7,800		900	950
Total assets		16,500	16,800		1,400	1,650

Preacquisition Balance Sheet Data

Company		V	V		G	G
in $ millions		Book value	Fair value		Book value	Fair value
Current liabilities		3,000	3,000		250	250
Long-term debt		7,700	7,500		400	300
Stockholders' equity		5,800	7,800		750	1,100
Total liabilities and equity		16,500	16,800		1,400	1,650

The company V is the U.S. company. (i.e. It follows U.S. GAAP.)

The company V purchased a 60% controlling interest in G for $900 million. V paid for the acquisition with shares of its common stock.


Full goodwill method
Fair value of G: $900/60% = $1,500
Fair value of G's identifiable net assets = $1,100
Goodwill: 1,500 - 1,100 = $400

Partial goodwill method

Purchase price of G: $900

Pro-rata share of G's identifiable net assets = $1,100*60% = $660

Goodwill: 1,100 - 660 = $240

Pooling method

Goodwill is NOT created under the pooling method.

Post-acquisition long-term debt-to-equity ratio

Company V:

Long-term debt = 7,700 (V,BV) + 300 (G,FV) = 8,000

Equity = 5,800 (V,BV) + 900(FV of shares to acquire G) + 600 (noncontrolling interest) = 7,300

Under U.S. GAAP, the noncontrolling interest is based on the full goodwill method. (1,500 Fair Value * 40% noncontrolling interest = 600)

Thus, the long-term debt-to-equity ratio is

8,000 / 7,300 = 1.0959