1. avatar says

    Hi Mike you are doing a great job here,
    I have a question regarding example # 10 while calculating goodwill why you didn’t apportion the amount of B/f into 20000×5/12 ?? whereas you have did the calculation of apportionment for 6000×7/12

  2. avatar says

    Hi Sir,

    Regarding the negative goodwill. I have few questions:

    1. Does the negative goodwill is considered as income or gain? how the double entry should be?
    2. Is that possible for negative goodwill to be remained in financial statement for more than one period ( a year period )? What is nature of negative goodwill?

    Thank you

  3. avatar says

    Dear Mike.

    I have a question in Example 10 in the lecture. When calculating W3, how come Premium is not included in “per q”(under Ingrida colume)? I thought the figure should be 26000+1500=27500 instead of 26000, because other reserves should be treated in the same way is retained earning.

    Thank you!

  4. avatar says

    If an associate makes say 17000 profit for the year ending 31st Dec 2013. And X acquired 22% of the share capital at a cost of $26,000 on 30th June 2013.
    Also the $26000 given represents the value of the share of the net assets.
    Therefore I’m assuming there is no goodwill.
    However I’m confused as to how the Share of X’s retained earnings in the associate will be calculate

  5. avatar says

    1. If NCI was not valued on proportional basis will they get a portion of the negative goodwill?

    2. If negative goodwill is impaired will NCI get a portion of the impairment if it is not valued on
    proportional basis?

  6. Profile photo of anonymous says

    Thank you very very much Sir Mike. I understood now. Very well explained. Words are short to explain how well you have been explaining the concepts. At the highest, I have only thank you to say.
    Because of your explanations, i am motivated to ask more doubts and study!!

    Thank you for being such a good tutor. I thank God for this.

      • Profile photo of MikeLittle says

        Goodwill is an asset of the subsidiary. It is sometimes defined as “the value of old established customers returning” During the day-to-day existence of a company the directors and employees are trying to win more business and they do so by building a reputation in their market.

        And then along comes a predator in the form of another company that wants to take over the existing company with its good reputation.

        But that good reputation is not reflected by any figure or line item within the financial statements. The company knows it exists and the auditors know it exists. The bank knows it’s there and the taxman knows all about it. The shareholders and the buying company are fully aware that the good reputation exists. But there’s no amount shown in the financial statements.

        It is, therefore, and unrecognised intangible asset of the subsidiary.

        And the predator is going to buy the shares of the subsidiary from the subsidiary’s shareholders. But to make it an attractive offer that the shareholders will find difficult to refuse, the predator says:

        “We’ll offer buy your shares and we’ll not just pay you the market price nor the asset valuation per share amount. NO! We’ll pay you a premium over that asset value, a surplus above that market value. And why? Because we recognise the fact that your company has a good reputation and that reputation is not reflected within your financial statements. So we shall offer to buy that unrecognised intangible asset at the same time that we are offering to buy the right to control all the other assets”

        And the shareholders (or shareholders holding a majority of the subsidiary’s voting power) are impressed with this offer and sell their shares to the predator.

        Now, how does the predator reflect the fact in the predator’s own financial records?

        Debit various assets and credit the liabilities taken over (say debit net assets) of $5million in made up round figures and credit cash with say $6million ie the amount actually paid

        But that’s a double entry that doesn’t balance – we’re missing a $1million debit representing the extra payment to buy the “good reputation”

        And that “extra” amount has bought “Goodwill” and that’s why goodwill is an asset


  7. Profile photo of anonymous says

    hi Mike sir
    This is a basic question but would like to ask you however.
    how come positive goodwill is an asset? the co. pays higher than it should and it is certainly not an asset. Please clarify.

  8. avatar says

    Hi Mike, if there is an impairment of goodwill, how would you treat it? Will it be deducted from the W2 before arriving at the final goodwill/(bargain purchase) figure, and in W3 and in NCI calculation?

      • Profile photo of MikeLittle says

        I don’t use any text book. All the worked examples are from the course notes that are freely available on this site. There are some worked solutions to some of the past examination questions (masquerading as “revision notes”) but certainly no textbook

        You WILL definitely need a revision kit from one of the reputable publishers but to buy a study text is a choice I shall leave entirely to you!

  9. avatar says

    hi mike
    just confused a little – working 3 ( consolidated retained earnings )can also be for other types of reserves like – revaluation reserve?. We can get a question with consolidating other reserves like share premium or revaluation reserve. If yes please send a worked example to clarify.

  10. avatar says

    Why do we not have share premium in subsidary incorporated into CS of FP?Beacause it was formed before acquisition?what’s the treatment for new share premium,that is generated by subsidary issuing new share after acquisition?

    • Profile photo of MikeLittle says

      @ginduja21, because it’s like a “profit” – it’s called a bargain purchase. We USED to have a complicated way of crediting negative goodwill to the retained earnings over a number of years, but that method has now gone.

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