On July 8th, 2013 LVMH purchased 80% of Loro Piana (luxury Italian cashmere brand) for $2.8 billion. The fair value of Loro Pianas identifiable assets and liabilities on that date were as follows:

Million $

Current Assets 500

Brand 1,500

Fixed Assets 1,000

Liabilities 1,300

The remaining 20% interest remained in Loro Piana familys hands.

Part I - Required:

1. LVMH applied the proportionate share method to account for its acquisition of Loro Piana. How much noncontrolling interest and goodwill did LVMH recognize on July 8th, 2013?

2. How would you change your previous answer if LVMH applied the fair value method?

At the end of 2015 the book value of Loro Piana had risen to $3.8 billion due to favorable conditions. However, in 2016 Loro Piana suffered a steep decline in sales due to decreased demand of the Asian market. At the end of 2016, LVMH top executives estimated the recoverable amount of Loro Piana to be $2.7 billion.

Part II - Required:

3. At what amount should Loro Pianas identifiable net assets and goodwill be reported on LVMHs consolidated financial statements at the end of 2016? Assume that the amount of Loro Pianas goodwill did not change since the acquisition date.