Final answer:
The preferred method to value noncontrolling interest under U.S. GAAP at the time of acquisition is the full goodwill method using the present discounted value of expected future cash flows. The noncontrolling interest's fair value is calculated by applying a discount rate to the future cash flows the interest is expected to receive, with an example being $256,500 per share based on a PDV of $51.3 million and 200 shares.
Step-by-step explanation:
The preferred way to value the noncontrolling interest in a subsidiary at the date of acquisition, according to U.S. GAAP, is through the full goodwill method. This approach involves measuring the noncontrolling interest's share of the subsidiary's fair value at the acquisition date. One way to estimate this fair value is by using the present discounted value (PDV) of expected future cash flows that the noncontrolling interest is anticipated to receive.
Calculation of the PDV involves determining the value of expected future cash flows in today's currency by applying a discount rate, which reflects the time value of money and risks involved. To represent this scenario, if the total PDV of future profits, as calculated, is $51.3 million and there are 200 shares involved, the value per share would be $256,500. This price per share represents the amount that would be recognized as the fair value of the noncontrolling interest's share on the date of acquisition.
While this method utilizes discounted cash flow analysis, it is important to remember that in practice, these calculations involve estimations and assumptions about future profits and appropriate discount rates, which could introduce significant elements of uncertainty and fluctuation in the valuation.