In this workout, Britney Crept group is planning to IPO a subsidiary. The IPO is for a non-controlling stake. Non-controlling interest will be accounted for at fair market value. We're asked to adjust the group balance sheet to account for the divestiture and we assume the transaction is tax free. So the most important thing I see here is the fair market value. We're not going to be accounting for that non-control interest. Taking a percentage of fair value of net assets, we're just using the fair market value method under US gaap. This is what you'd have to use under IFRS you've got a choice of the two methods. So what is that fair market value? If we go down to the bottom of the workout, we see the value of the stake sold is 70.

So now we need to start adjusting our group post IPO, and I'm gonna start by taking the group column and adding on any adjustments you might notice we've got the group column and then you've got a completely separate subsidiary column, and that's what we're IPOing. Part of the group column includes the figures of the subsidiary, so we don't need to add the subsidiary in. Again, I'm going to copy that formula down so that it's in line with any of the blue items. So we're just taking group plus adjustments and any of the subtotals I copy across because they sum vertically check that our resulting balance sheet balances 600 of total assets and 600 of total liabilities and equity.

The next thing we need to do is the adjustments we need to account for this IPO. What's happened in the IPO is we started off with some cash proceeds. The company's earned 70 from the sale of that stake.

But the next thing we need to ask is, is this really a divestiture? Are we really divesting of that subsidiary? Are we really deconsolidating it? And the answer is no. We're not actually deconsolidating the subsidiary. We're not selling it off altogether and it'll have its own financial statements and never be seen again. It's still going to be part of the group. Now why is that? Because we only sold 30%. It was a non-controlling state that was sold. That means we still own 70% of it, and because we still have control, that means we still have to consolidate. So our group figures are still going to include the subsidiary. All that we account for then is the cash that's come in and the fact that we now have some new shareholders, and that's the non-controlling interest that non-controlling interest represents outside shareholders. They are funding some of our assets and our liabilities that we on our group balance sheet, and we now need to say, oops, sorry, someone else is actually funding them. Now, the one thing missing is the goodwill that's going to have been created on this transaction. So you might have noticed, I've just updated my Excel. I've included this extra line item now called Goodwill. I've just made sure that my subtotals include the goodwill and this will now be the same as your template. I need to calculate this goodwill, and I've got some labels down at the bottom here. We start off with the value of the stake sold and we sold it for 70, but what was the book value of that stake sold? If we can find that, then the difference between that and the value of the stake sold will be the goodwill. Well, I know that the book value of the entire subsidiary was 110, but I also know that we only sold 30% of it. So its book value is 33. If we've sold it full 70, then that means goodwill has been created to the tune of 37. So how does that now go up into our balance sheet? Further up the page? Well, Goodwill will have been created. That'll go into our adjustment column, but you might notice that our balance sheet now doesn't balance. I've got total assets of 707 and total liability and equity of 670. Well, if my assets have gone up, then my equity will go up as well by the same amount by that 37.

Now I've got a balanced balance sheet, I've got the goodwill that's been created, and our NCI is being valued at the fair market value.