December 10, 2010 at 5:13 pm
I want to find out when goodwill in Associate is calculated and when it is not cos mostly we only do investment in Associate.
thank you.December 11, 2010 at 7:48 am
sub – goodwill (as we have over 50%)
associate – investment (as we only have 20-50%)
you won’t have goodwill on an associate as far as I am aware, just the investmentDecember 11, 2010 at 10:48 am
There is goodwill in the associate and you do it only if you suspect a gain on bargain purchase( formerly known as Negative Goodwill) just do the math on your calculator and see if there is any gain on bargain purchase, if not then don’t waste time preparing one. Most cases there is no gain on bargain purchase.December 25, 2010 at 2:44 pm
You would normally calculate “goodwill” on the acqn of an Assoc but it’s correctly called “premium on acqn” Check out the OT working W5ADecember 25, 2010 at 6:07 pm
There IS Goodwill in Associate (A) if the cost of investment is more than the net asset assets of A acquired.
As far as the Investment in Associate is concerned, there are two ways (methods, if you wish) to calculate it:
Please refer to June 2009 question: “Pacemaker“
Holding % x Net Assets @ Reporting Date
(30% x $340)
Cost of Investment—$120
+ 30% x (340 – 260)—-24
Choose whichever you like and enjoy.
Merry X’MasOctober 1, 2013 at 6:59 pm
Please I want to know the accounting treatment for that kind of goodwill should it goes to Income statement …ThanksOctober 2, 2013 at 6:00 am
No – there is NO goodwill in an associate! Any premium paid over the share of fair valued assets acquired is called “premium on acquisition”
In the parent’s own accounts, the cost of the investment remains (less any subsequent impairments)
In the consolidated accounts, the investment in the associate is calculated as Cost of investment + share of post acquisition retained earnings – any impairments
Those impairments are deducted in arriving at consolidated retained earnings
Does that help?May 5, 2014 at 9:08 am
So Negative goodwill Means investor has paid less than share of associate’s net assets.
1-This negative goodwill have no impact on Financial statements ?
2-Is there use of negative goodwill ,while testing impairment.?If yes,How?
Thanks in advanceMay 5, 2014 at 10:02 pm
In a statement of income we take our share of the associate’s (time apportioned if a mid-year acquisition) profit after tax and show it as a pre-tax item.
In the statement of financial position, the investment in the associate is calculated as “Cost of acquisition + share of post acquisition retained earnings – any impairment”
Nowhere in the above does “negative goodwill” come into any equation
There is no goodwill arising on the acquisition of an investment in an associate (there used to be, but no more)
Any premium paid on acquisition (or any bargain purchase calculation) does no longer feature. the investment on the statement of financial position is as I have stated: “Cost of acquisition + share of post acquisition retained earnings – any impairment”
I don’t believe that I can make this any clearer!May 6, 2014 at 12:58 pm
if loan notes are issued as consideration then we will not can loan note amount (as intra group item).will interest cost is shown in consolidated income statmentMay 6, 2014 at 3:17 pm
The loan note issued as part of the consideration payable on acquisition will be issued to the former shareholders of the associate – not to the associate itself.
Therefore cancellation is a non-concept.
Interest will be paid by the acquirer to these former shareholders and will be shown in the acquirer’s income statement as a finance cost but the interest is received by the former shareholders, NOT by the associate company and there is thus no cancellation of finance expense against the finance income because the finance income is not shown as an income of the associate
OK?May 6, 2014 at 3:19 pm
In addition, there will be no consolidation of any income statement unless the acquirer also has at least one subsidiaryMay 7, 2014 at 2:41 am
thank u sir,
if loan notes are given as consideration for subsidiary acquisition then will we cancel finance cost in cisMay 7, 2014 at 3:33 pm
NO!!!!! If loan notes are issued as part of the purchase consideration, the expense is shown in the parent’s statement of income but the receipt of the interest is in the hands of the former shareholders! It is NOT received by the subsidiary (nor the associate, if applicable) The money is paid outside the group of companies into the hands of individuals like you and me who used to hold shares in the subsidiary / associate
There is NO intra-group receipt of loan interest against which we could cancel the finance cost
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