Asked by Sygie Lamigo on Jun 14, 2024
Verified
How is the fair value of the shares representing an NCI calculated in the absence of an active market for the company's shares?
Fair Value
The price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Active Market
A market in which assets or securities are frequently traded, providing reliable price information and liquidity.
- Determine the fair value of shares for NCI in the absence of an active market.
Verified Answer
AJ
ahmya jonesJun 19, 2024
Final Answer :
Calculation of fair value of shares representing NCI:
- If there is an active market for the voting shares of a partly controlled entity,the calculation of value of NCI shares is not problematic.
- In other circumstances,the fair value of NCI shares must be estimated.One method is to apply the ownership percentages to the cost of the parent company acquisition.For example,if the parent paid $120 000 for a 75% interest in the subsidiary,the value of the NCI could be estimated as 25/75 of $120 000,or $40 000.
- If there is an active market for the voting shares of a partly controlled entity,the calculation of value of NCI shares is not problematic.
- In other circumstances,the fair value of NCI shares must be estimated.One method is to apply the ownership percentages to the cost of the parent company acquisition.For example,if the parent paid $120 000 for a 75% interest in the subsidiary,the value of the NCI could be estimated as 25/75 of $120 000,or $40 000.
Learning Objectives
- Determine the fair value of shares for NCI in the absence of an active market.