Analyst with a uk-based investment firm

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Percy Byron, CFA, is an equity analyst with a UK-based investment firm. One firm Byron follows is Nin Mount PLC, a UK-based company. On 31 December 2008, Nin Mount paid £320 million to purchase a 50 percent stake in Boswell Company. The excess of the purchase price over the fair value of Boswell's net assets was attributable to previously unrecorded licenses. These licenses were estimated to have an economic life of six years. Th e fair value of Boswell's assets and liabilities other than licenses was equal to their recorded book values. Nin Mount and Boswell both use the pound sterling as their reporting currency and prepare their financial statements in accordance with IFRS.

Byron is concerned whether the investment should affect his "buy" rating on Nin Mount common stock. He knows Nin Mount could choose one of several accounting methods to report the results of its investment, but Nin Mount has not announced which method it will use.  Byron forecasts that both companies' 2009 financial results (excluding any merger accounting adjustments) will be identical to those of 2008. Nin Mount's and Boswell's condensed income statements for the year ended 31 December 2008, and condensed balance sheets at 31 December 2008, are presented in Exhibits 1 and 2, respectively.

Nin Mount's current ratio on 31 December 2008 most likely will be highest if the results of the acquisition are reported using:

A. the equity method.

B. consolidation with full goodwill.

C. consolidation with partial goodwill.

Reference no: EM131044808

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