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Hello Mike
Hope you are fine …I have 2 questions about ”More Complex Group Structures” which I think these 2 questions are somehow related to each other. Let me ask my question by referring you to Example 3 from Chapter 3 of your P2 notes (Matis & Dimitris & Vitalis).
Q1 – When you are calculating goodwill for ”M in V”, you have written 80% * 80,000 + NCI as the cost of investment. Why you did not write all of the 80,000 + NCI as the cost of investment? Why you have excluded 20% of 80,000 ?
Because for calculating goodwill we usually calculate 100% of the cost – 100% of FV@DoA .Q2 – When you are calculating NCI, you have deducted 20% * 80,000=16,000 from the total NCI. Again why?
If we just write 80,000 for calculating goodwill and also do not deduct 16,000 from NCI, then everything is in balance! I listened to your lectures and heard some stuff about ”Double Accounting” and I think my misunderstanding is also for this fact! But yet can not understand the answer and it is vague for me.
Many Thanks
If we give to the nci their TOTAL share of the sub-subsidiary and, in addition, we give to the nci their share of the subsidiary ……..
can you see that the indirect nci interest in the sub-subsidiary is being given their share of sub-sub’s assets and is also being given their share of the subsidiary assets. But included within those subsidiary assets is the cost of the investment in the sub-sub …. effectively, the cost of acquiring the subsidiary’s share of the sub-sub’s assets.
Unless we make an adjustment on consolidation, the nci in the subsidiary will be credited with not only their share of the subsidiary (including their share of the subsidiary’s assets) but also their direct + their indirect share of the sub-sub
Is that any better?
Hello Mike
Thank you for your answer.But unfortunately I should confess I have not got the trick yet. Maybe I can easily memorise these two adjustments but I hate to do so!. So maybe it is better to think about it again and again and again and … and hope to at last understand that.
Again many thanks with your answer and time.
Hello Mike
I THINK I have got the trick! Let me explain and hope I am true!
I think the keyword is ”INCLUSIVE”!Q1 – Because the question says that fair value pf the 52% NCI (INCLUSIVE = BOTH direct and indirect) is 61,360, so we put 80% * 80,000 for 48% of the cost of investment and the fair value of the remaining 52% is 61360. So in fact we are calculating 100% of the cost of investment as usual.
Q2 – We deduct 20% * 80,000=16,000 from the total NCI, because this amount is in both NCI investment valuation of D and also in NCI investment valuation of V. So for calculating the total NCI, we should deduct 16,000 to avoid from double accounting.
Am I right ?
And If I am right, What would be the cost of investment in Q1, if the question ONLY states the fair value of the “direct” part of NCI. Is it ” 80,000 + Fair value of Direct NCI ” ?
Many Thanks
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