1. avatar says

    Hi Mike,

    Maybe you have answered this before, however I could not find it. In the example 5 (which is additionally mentioned below the video, the retained earnings have been removed from the calculations in W2 (of Goodwill), however, in W3, the Pre Acq RE have been mentioned as 6000.

    Not sure of the logic, why this was excluded at the time of goodwill calculation while RE calculation does not ignore this figure.

    Awaiting your reply. Thanks.

  2. avatar says

    Good day Sir
    In example 5 of this Lecture the case of Remilius acquiring Liona’s 75% share
    Under working 3:retained earnings, i don’t understand why Liona’s Pre-Acquisition retained earnings has to be $32,000 and current retained has to be $30,000 while we were given in the question the Current year retained earnings of of Liona as $98,000 and Prequisition retained earnings as $60,000

    • Profile photo of MikeLittle says


      I can’t find this example in this recorded lecture! But the example of Remigius and Ilona deals with amounts of 98,000 and 60,000 as per the course notes.

      If my recording uses 32,000 and 30,000 it must be because it was recorded when the course notes used those amounts and the notes have been changed subsequent to the recording


    • Profile photo of MikeLittle says

      Impairment is, effectively, depreciation. One difference when compared with depreciation in that depreciation is applied annually whereas impairment is only applied when the directors have considered the carrying values of the company’s assets and decided that they are shown at a value greater than their recoverable amount

      In the context of goodwill, we no longer amortise this asset (we used to until relatively recently). So the directors now are required to carry our an “annual impairment review” and, if they decide that goodwill is being carried at a value greater than its recoverable amount, then the company needs to impair the goodwill

      Is that ok?

  3. Profile photo of cecel says

    Hi Mike,
    I would like a little more clarification as to why there was no Nci share of the $1000 goodwill impaired in example 5, but in the previous example there was, NCI impaired goodwill share was 25% of $700=$175.

    • Profile photo of MikeLittle says

      They are illustrated in the course notes – it’ll most probably be a share for share exchange – and there are lots of examples from past F7 exams in mini-exercises at the end of the course notes and still more in the F7 supplement on the F7 page on this site

  4. Profile photo of sandy says

    Dear Mike,

    I understand that w4 is the balance sheet figure for NCi. And ur working up to this point is comprehensive but what if the sub had a brand and it was valued etc etc, we would include this as part of our net assets at DOA right? How would the nci account for their share in this? Do u put their % of brand value in their working?

    • Profile photo of MikeLittle says

      Yes, of course. They are entitled to their share of the fair valued net assets as at the date of acquisition (including the fair value of the brand and any fair value adjustments to the other net assets)

    • Profile photo of MikeLittle says

      I believe that there is a video showing the different ways that the examiner could use to give you information leading to the ability to calculate goodwill.

      Without looking at the video above, whichever way has been used, there are at least 3 other methods of arriving at goodwill.

      All 4 methods are dependent upon the basis of the valuation / calculation of the value of the nci investment

      Check out the video where all this is explained

    • Profile photo of MikeLittle says

      Why would you do that? If a question says that these have a fair value of $XXXXX, and $XXXXX is different than the carrying value of those matters, then you would make a fair value adjustment.

      But otherwise, no

      • Profile photo of allenmendonca says

        Isn’t Fair Value of Subsidiary at the date of acquisition = Net Assets of Subsidiary at the Date of acquisition?

        Net Assets = Share Capital + Reserves – Fictitious Assets to the extent not written off?

      • Profile photo of MikeLittle says

        No, where have you got that from.

        It really depends on what exactly you mean by “fictitious assets”

        If you’re talking about unrecognised intangible assets like an internally generated brand name or a customer list, these are part of the subsidiary’s net assets at date of acquisition. But they do not appear in the subsidiary’s accounting records – they are unrecognised. Nevertheless, they DO form part of the subsidiary’s fair valued net assets at date of acquisition and therefore need to be brought is as fair value adjustments in working W2, Goodwill

      • Profile photo of allenmendonca says

        Fictitious assets in the sense Preliminary expenses not written off, Advertisement suspense account, discount on issue on shares to the extent not written off etc

      • Profile photo of MikeLittle says

        Yes, you mentioned preliminary expenses and advertising suspense account in your first post.

        I have never heard of any company that has not written off its preliminary expenses!

        The advertising suspense that you mention I presume is an advertising campaign the benefit of which will not be felt until next year so a proportion of it has been treated as a prepayment (or not so treated, but could justifiably have been treated)

        Now you also bring in discount on issue of shares! Well, let’s get rid of that one straight away! Such a discount is ILLEGAL! Not only is it not a fictitious asset – it’s not an asset at all and, if it has happened, then you should be warning the directors that their personal wealth is about to be reduced when the case is brought to court. In addition, they could well find themselves out of a job and on the list of Banned Directors under CDDA

        I’ve dealt with Preliminary expenses – never heard of it happening

        A prepayment for advertising seems like a reasonable case of a fair value adjustment – though the (new) subsidiary’s (former) auditors need to be questioned closely about why this was not treated as a prepayment in last year’s financial statements (if applicable)

  5. Profile photo of maat9 says

    your lecture is great…..but my question is why the impairment of good will charged to NCI in first example.of the lecture…… and plz tell me when we charged the impairment of good will charged to NCI?

    • Profile photo of MikeLittle says

      Where the nci is valued on a proportionate basis, they have no goodwill and therefore any impairment is all ours.

      Of the nci is valued on a full fair value basis, they have some goodwill, so any impairment is allocated between the parent and the nci in the proportion of their different shareholdings.

      Does that answer it?

  6. avatar says

    Dear Sir, thank you very much for the lecture! It’s very helpful!

    One question, I am not quite sure why we have to add NCI in the CS of FP if the parents company do not own their part of the sub.

    Many thanks

    • Profile photo of MikeLittle says


      It’s because they are partly responsible for financing the activities of the subsidiary. In addition, we add in the whole (100%) of the subsidiary’s assets and liabilities even though we don’t own 100%. We add the whole value because that’s what we control. The part that we don’t own (even though we do control 100%) is being financed by the nci. If we didn’t add in the nci, our Statement of Financial Position would not balance

  7. avatar says

    Using the Course notes provided, there seems to be a discrepancy on page 39. There’s an entirely different question (Remigjius and Ilona) there but it is not the one referred to by the professor… can some direction be given as to where I can find the question the lecturer refers to during his lecture.
    Many Thanks

  8. avatar says

    I am just working out the examples in chapter 7 but it seems the question you have on page 39 is different from the one I have on the same page
    I have Remigijus and Ilona on page 39 not sure how that is or am I using a different set of notes


      • Profile photo of MikeLittle says

        @loopheichuen, When a question says “….acquired on the date of incorporation ” that phrase is telling you that the date was the date that the company was “born”. The word “incorporation” in the context of company law is the act of creating a company.

        So, if we acquire the shares on the date of the subsidiary’s incorporation, the subsidiary cannot have had any time to conduct business and therefore could not have accumulated any retained earnings as at the date of acquisition


      • avatar says

        @MikeLittle, omg it’s THAT simple? thanks!!! i understand now. but would it have been different if the word ”incorporation” is not there? if the word ”incorporation” is not there, i just do the usual calculation right? ie: add the $6000 in?

      • Profile photo of MikeLittle says

        @loopheichuen, If the shares were not bought on the date of incorporation, then presumably the subsidiary will have amassed some retained earnings as at date of acquisition. So, normal working 2. But beware! Those retained earnings in working 2 are not likely to be the retained earnings as at the date of consolidation and we are looking for our share of the S post acquisition retained earnings

  9. Profile photo of badmanbrian says

    Question: Eg 5, the question states that “60% was acquired at the date of incorporation [01.01.2009] but the requirements is that we have to prepare consolidated FP as at 31.12.2009. Is not this 1 year, so why not include the retained earning of 6k in the goodwill cal.

  10. avatar says

    its good material thanks.It would be more helpful if its availed to us in a downloadable settings because of different demanding circumstances, so that we can listen to these informative videos when when studying at appropriate place and not at the Internet cafe.please consider this.

    • Profile photo of MikeLittle says

      @rosemaryinonge, Hi Rosemary. Nci on a proportionate basis means that you will need to calculate the fair value of the subsidiary’s net assets as at the date of acquisition BEFORE you can put in the nci investment valuation in working 2.

      So, set the working up woth the fair value of the consideration paid ( or to be paid ) by the parent on the acquisition.

      Then leave a line for the value of the nci investment.

      Leave another line so you have space to total the cost of the investment together with the nci value.

      Set out the fair value of the subsidiary’s net assets as at date of acquisition. Total that figure and put it beneath where you will ( soon ) put in the total “value” of the subsidiary ie our cost + nci value.

      The fair value of the subsidiary is then multiplied by the nci’s percentage interest in the subsidiary. Put that figure in line 2 of working 2.

      Add the cost of the investment to the nci value ( which you have just put in ) and that gives us the “value” of the subsidiary as at date of acquisition!


  11. Profile photo of MikeLittle says

    There enough posts on this string – including an explanation by me! – as to why that example is no longer in the notes. However, the subject is fully covered in the lectures. If I remember this next season, I’ll re-record that lecture but, until then, you’ll just have to struggle and follow what is recorded without the notes being available. Sorry :-(

Leave a Reply