More Complex Group Structures Example 4 part a

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  1. avatar says

    Dear Sir
    In the example 4…..Cost of Investment (W2) is 500,000. But dont you think that Investment in Danius in SFP dated 30 June 2009…which is after disposal(31 march 2009)….so that 500,000 represents 40 % of investment….am I right Mr. Mike..?
    if I am then the cost of investment in W2 would be 1000000 ?

    Plzz reply sir
    Thanks alot in advance

  2. avatar says

    Hi Mr Little,

    Not sure if this has been mentioned before but just something I have started doing just for my own working out purposes and thought I would run it by you. During working 3 for consolidated retained earnings just after deducting pre acq profits you total it and then apportion our share as a %. While this works and is what I started with I have since started instead of apportioning our % but deducting the nci % and making a new total in the subsid column (which is our share) and then moving it to the holding company column. For example in the above lecture we get post acq profits in K as 600 then you multiply by 70% to put 420 in the holding column. Instead I have 600 then deduct nci share of 30% being 180 and totalling to 420 which I then move to holding column. I find it useful as it works out ‘their share post acq retained’ ready for later workings at the same time.

    Just a thought :) would this seem acceptable? I know your far wiser than me :).

    Many thanks. Paul.

  3. avatar says

    Hello Mr. Little,

    I have one issue with this question. Why is it that we attribute 5.1k as an impairment when they have goodwill of 15. With that goodwill, then they should be charged 15*20%=3. And we, would be charged 70*20%=14.

    It adds to the same 17 of total impairment, but it seems flawed that we charged them more impairment than they should be, since it has been identified how much goodwill is attributable to the NCI.

    • avatar says

      @prateshramjohn, This would in turn affect the Ret. Ears and the NCI.

      Impairment charged to Ret Ears = 14000+1400+400=15800. Giving Ret Ears = 1578k-15.8k=1562.2k

      and NCI = 225k + 180k + 15 – 3 – 120k = 297k

      This would be the only affected values and the CSoFP would balance none the less, as the changes was simply increasing NCI and reducing Ret Ears.

      What do you think?

      • Profile photo of MikeLittle says

        @prateshramjohn, Hi

        I think you’re wrong! When the nci is valued on a full, fair value basis – that is, they have some goodwill attributable to them, then any impairment is divided on the basis of the proportionate shareholdings

        I too thought the way are thinking but I too was incorrect. When I first did the “Mini exercise, I allocated goodwill against the nci until they had no goodwill left to be impaired and the balance went to the parent company. But I was wrong

        Additionally, the concept of calculating the nci attributable goodwill ( if the amount is not given in the question ) is apparently a redundant idea. Goodwill is calculated as an overall amount following the layout which I have now adopted – and that’s the layout approved by both Steve Scott at F7 level and by Graham Holt at P2 level

        And you’re correct – it does seem unfair

        But, there again, life is

  4. avatar says

    Peterb said:

    The $68 forms part of As’ total invesments of $743 and so in working out his investmet in L the $68 must be eliminated therefrom. on’t forgt that A’s total investment is made up of the 350 sares @$1.7 in K plus the painting plust the investment in L. Thusby a process of elimination or by working backwards you arrive at A’s inv in L.

    Trust that this was of some help.

  5. Profile photo of hui ching says

    K acquired 200 shares in L while A acquired 40 shares in L. so should be left 60 shares, which means this is not wholly owned sub. why we use 60%(100% minus TNCI 40%) to calculate A’s share in L for W3? there is still 60 shares for NCI in L. anyone can help me to clarify this matter?
    thanks. :-)

  6. avatar says

    Dear sir,
    when calculate goodwill for K in L, the cost of investment of K in L is $280K, which is 70% of $400K. However, the consideration paid by K to L is total $400K to buy 70% of L’s share, so the cost of investment of K in L should be the total amount of $400 which has already represent 70% of share in L. why do we still need to time the proportion of K’s shares on L of 70% in calculating goodwill of K in L

    • avatarstudynotes says

      @jie8503, As far as i have understood the cost of Investment of K in L is $400 and K has acquired 10/15 (66.7%) of L. So K’s Goodwill in L is 570*66.7%= $380 while the Group share is $380*70%= $266. (Group Share: A has acquired 70% of K)

  7. avatar says

    In the video 70% of the net assets($750k x 70% = $525k) of kristina is deducted from the the consideration to calculate the goodwill. Usually the full 100% of net assets is deducted as previous examples show. Why are we now taking 70%? Is it because it is D shaped? BPP deduct 100% net assets for D shaped groups.

    • avatar says

      Hi Ricky
      No its nothing to do with D shaped structure. i was well confused about this as well. but I think its “whether the company’s policy is to value NCI on a PROPORTIONAL BASIS (partial goodwill) or FAIR VALUE BASES (which is full goodwill)” . For proportional basis we take % of net assets to goodwill calculation as shows on this example. (read last line of the question). we take the full net asset figure to GW calculation if its fair value basis.
      Please correct me if im wrong.

    • avatar says


      Shares in L total 300, of which 40 shares were bought by A. The greatest common factor of both these numbers is 20, therefore (300/20 =15) (40/20 =2) = 2/15
      Since 200 shares have been bought by K, the DNCI attributable is equal to 30% x 67% (or 10/15) which is 20%. Therefore 20% of 15 is 3 (or 3/15). Long winded I know!

  8. Profile photo of victoria02 says

    Consideration paid by K to L is $400K and the question says that there were no other investments held by any of the 3 companies, thus all investment held by K relates to L. The price per share was $2, thus the total shares purchased equal to 200K ($400K/$2) and the shareholding is 67% (200sh/300sh).

  9. Profile photo of victoria02 says

    Hi! I have one query: why do we account only for our (Anda’s) share in consideration for accquisition of a sub-subsidiary (Liene) in goodwill calculation (70%*$400K) since we consolidate a 100% of sub-subsidiary?

  10. avatar says

    ok thanks – sound improved as it went on I think. I hadn’t realised they weren’t the Dec exam ones when I started so may watch the earlier ones back again in case things have changed.
    Fantastic free resource by the way – I will be spreading the word :-)

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