In this workout the Florence Inc. is buying 80% of the equity capital of Rome Ltd We need to put lots of information into this calculation We need to do a sources and uses of funds immediately underneath We need to do a goodwill calculation and then we need to consolidate the two sets of accounts together We might notice that it asks us to use the fair value method for non-controlling interests So let's start by calculating the sources and uses of funds Our first one is the purchase of equity in Rome Ltd. From the question we spent 3,355 on that I now ask, where did I get the funds for that? The first one is balance sheet cash, that 55 million. The next one was an equity issuance of 825 million And the remainder was a debt issuance, so let's work out the remainder It's the purchase price minus the funds you've already found, giving us 2,475 And now I check my sources of funds equal 3,355 and my use of funds 3,355 as well Next we move onto the calculation of goodwill Now at the top of the question, it said the fair value of the remaining 20% stake is considered to be 675 Because we're given the fair value and because we're asked to use the fair value method for non-controlling interests we'll have to include that in the goodwill calculation So goodwill calculation will be in three parts, firstly we'll find the goodwill on the acquirer stak We'll then calculate the goodwill on the NCI stake and then we'll put those two bits together to find the final deal goodwill So let's start with the goodwill on the acquirer stake This starts with the purchase price and that was given to us on our sources and uses of 3,355 Next up, I need to work out how much that is above the value of net assets of shareholders' equity So I go down to Rome's equity and it's 1,773.2 However we only purchased 80% of that, so I'm going to hard code an 80% into that formula (wouldn't normally do that) And then times that by minus 1. Fantastic! I can now work out the goodwill on the acquirer stake being 1,936.4 But we've also got goodwill on the NCI stake For this I start with the fair value of NCI, that was given to us of 675 I now need to work out how much higher that is than the book value of NCI For that, I need to take shareholders' equity (or net assets) on the balance sheet and I only take 20% of it So my total equity of Rome is 1,773.2, I times that by 20% and times that by minus 1 So the goodwill on the NCI stake is the sum of the two items above 320.4 Lastly then, my final deal goodwill is the sum of the goodwill on the NCI stake and the goodwill on the acquirer stake of 1936.4 And it comes to 2,256.8 We now need to put that and everything else into our consolidation The first thing we need to do is take Rome's equity and get rid of it. We've bought those shares and ripped them up So I take Rome's equity, times it by minus 1 And now when we go through to the consolidation on the right hand side, those two figures will cancel each other out Next up is the financing, we used some cash to buy this company, 55 You can also see we used some equity issuance and debt issuance, so let's put those two in as well Firstly long-term debt, that's gone up by 2,475 and there's been an equity issuance as well The last one is the extra goodwill and the NCI that's been created The goodwill is the deal goodwill just above of 2,256.8 And we also created an NCI The NCI given to us in the question, it's fair value was 675 So I now check down from my combo column (my consolidated set of accounts) I've got 21,377 of assets and I've got 21,377 of liabilities and equity