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Hi Mike,
I am a bit confused with exchange diff on goodwill when calculating RE. I though we should apportion our share let say 70% of whole gain on goodwill goes to RE parent and 30% goes to NCI. However, I came across questions like Memo (Q47 BPP Revision Kit) when the whole gain on goodwill exchange is included in parent RE. What is the reason behind that?
Many thanks in advance for your help!!
Beata
nothing mentioned in the question at all.but when I check how they calculated goodwill it looks like the used full method.
Oooo Mike please enough confusion for today 🙂 what do you mean RTFQ? I am still checking the question and answer for that as I am not sure I understand.
Thanks for coming back to me!
ok got you read through the full question carefully 🙂 thanks. yes got my lesson 🙂
mike what I dont get is taht in that question goodwill is calculated as follow:
Consideration paid 120
NCI(132×25%) 33
_________less Fv of net assets (132)
Impairment (4.2)
_______
Goodwill 16.8This isnt really a way you calculate a goodwill by prportionate method is it?
that why I am confused…what I am missing ? 🙂
thanks!
Good – and carry that little lesson forwards into the exam room next week
🙂
Yes, if they are proportionate it means that their value is their percentage proportion of the FV of SNA @ DOA
What you may be getting confused with is the notional allocation of goodwill to the nci so we can do an impairment calculation
Where nci investment is valued as their proportional share of the FV of SNA @ DOA then there is no goodwill attributable to them
But, on the occasion of an impairment review, we will be considering the cgu of the subsidiary as a whole and, for those purposes, we shall allocate an amount of notional goodwill to the nci
If goodwill (entirely attributable to the 75% parent) were sat $120,000, then the 25% nci has a virtual / notional 25 / 75 * $120,000 ie $40,000
When we now look at recognised assets of the subsidiary and add on the goodwill attributable to the parent $120,000 PLUS the notional goodwill attributable to the nci $40,000, we can compare that grand total with the recoverable amount of the cgu / subsidiary.
Where that recoverable amount is lower than the carrying value, we need to impair the carrying value. That impairment is allocated first to any individual asset within the cgu that is impaired
Secondly we impair the goodwill. If the total impairment is less than the combined total of $160,000, we sub-divide the (say) $100,000 between parent and nci ($75,000 / $25,000) but we only account for the $75,000 because the nci didn’t have any goodwill to begin with on a proportional basis, so how can we charge them with their share of any impairment
The only entry would be to reduce goodwill by $75,000 and reduce consolidated retained earnings in working W3
If the impairment exceeded total goodwill, say total impairment is $212,000, then the allocation of the goodwill impairment will be $120,000 / $40,000. Of these two, only $120,000 will be accounted for – debit consolidated retained earnings credit goodwill.
The remaining amount to be impaired is then $212,000 – $160,000 = $52,000.
This figure of $52,000 will be used to reduce carrying values of assets in the cgu subsidiary on a pro rata basis and 75% ($39,000) charged to consolidated retained earnings. The remaining $13,000 will be charged against the nci
Is that ok?
I print and read through what you have said again but I got it.
Thanks very much for your time and taking my confusion seriously 🙂 very much appreciated!!
I will as well remember to RTFQ 🙂
Beata
That’s a girl!
(I assume, with a name like Beata!)
Throughout your exam-taking life, RTFQ
And the rest of you reading this, Read The Full Question!
Hi Mike,
My question is on the allocation of exchange difference on goodwill among owners (parent company and NCI) when dealing with a foreign subsidiary at consolidation.
My understanding is that exchange difference on goodwill is to be apportioned between owners using percentage share of each owner if NCI is measured at fair value but I saw a solution that treated it differently.
The exchange difference on goodwill was apportioned between NCI and parent company using their individual goodwill. For instance, NCI share of exchange difference on goodwill was calculated as follows: NCI goodwill (NCI at date of acquisition less NCI portion of subsidiary fair value at date of acquisition) divided by total goodwill multiplied by exchange difference on goodwill. The parent company share of exchange difference on goodwill was calculated as total exchange difference of goodwill less NCI share of exchange difference on goodwill.
Is my understanding accurate or the solution I saw more accurate?
Thanks for your time.
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