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Hello Mike
Hope you are fine.My question is about adjustment to parent’s equity (W3B).
For example suppose A has 60% of B and then increase its investment to 80%. So A wants to acquires (20% / 40%) of the NCI’s share.
As far as I understood in W3B formula and for the NCI part, we are doing the following :
(NCI at date of acquisition + NCI’s shares of post acquisition increase in net asset ) * 20% / 40%My question is why we do NOT deduct the NCI’s share of goodwill impairment from NCI’s? I mean why the formula is not like this :
(NCI at date of acquisition + NCI’s shares of post acquisition increase in net assets – NCI’s share of goodwill impairment) * 20% / 40%Why goodwill impairment is excluded?NCI also have their share of goodwill impairment !!
Hope my question is clear!
Thank you in advance
Kind RegardsYes, your question is clear. Are you sure that the example that you are looking at is not one where the nci was valued on a proportional basis? What’s the name of the example that has you confused?
Hello Mike
Thank you.The question is Traveler (December 2011 – Question 1). I refer you to the ACCA solution. If you look at Working 1, the positive movement in equity is $8.3 M. Although there is a goodwill impairment for Data and it is NOT on a proportional basis, but the goodwill impairment is NOT deducted.
Thank you in advance for your reply .
Yellow, the goodwill impairment happened at the year end and has been dealt with in the answer as a separate exercise, split on an 80% / 20% basis
The fair value of the nci as at date of acquisition ($395) includes their share of e goodwill so taking that value plus their share of post-acquisition profits and multiplying by 20%/40% will include their share of the sale of goodwill.
As for the impairment, there is a note in the ACCA solution explaining why it has been allocated on an 80/20 basis rather than a 60/40 basis
Ok?
Naser, I think my reply to Yellow also addresses your query. If not, please post again
Hello Mike and many thanks for your reply.
My question is why goodwill impairment is NOT deducted from NCI BEFORE multiplying by 20%/40%.These are the numbers :
Fair value of NCI at date of acquisition= 395
NCI post acquisition share of retained earnings = 57.2
NCI post acquisition share of other components of equity = 4.4
Impairment of goodwill = (10)The correct asnwer is as follows :
Fair value of NCI at date of acquisition=395
NCI post acquisition share of retained earnings=57.2
NCI post acquisition share of other components of equity =4.4
Total = 456.6
Acquisition of additional 20% of Data=(228.3)
Impairment of goodwill= (10)
Final answer=218.3As you see the goodwill impairment is deducted AFTER multiplying by 20%/40%. However I think the we should deduct goodwill impairment BEFORE multiplying by 20%/40% . I mean it should be as follows :
Fair value of NCI at date of acquisition= 395
NCI post acquisition share of retained earnings=57.2
NCI post acquisition share of other components of equity=4.4
Impairment of goodwill=(10)
Total=446.6
Acquisition of additional 20% of Data=(223.3)
Final answer= 223.3Thank you in advance (Excuse me ! I myself know these types of questions take lot of your time 😉 )
The value of the nci was calculated before the impairment because the impairment was only accounted for AFTER the transfer. That impairment was only calculated as at the year end, ie AFTER the transfer.
The nci share of the impairment was calculated at 20% of 50. The answer correctly points out that it COULD justifiably have been calculated at 40% because the value of Data fell throughout the year and the nci percentage right the way throughout the year was 40%. It’s just that the answer has chosen to apply the year end percentage of 20%
The impairment of $50 is calculated as at the year end – there had been NO impairment as at the date of the transfer (although you could have argued that that impairment should have been allocated on a 60% / 40% basis (as explained above)
Better?
Thank you dear Mike with your reply.
But, Traveler has also acquired 20% of the NCI on 30 November too. So both acquisition and goodiwll impairment is at the year end! How can we understand which one is occurred sooner ?! Both is on the same day!
Good question! And that’s why the examiner’s solution explains why the printed answer takes 80/20 rather than 60/40
And when the printed solution attributes 80% of the impairment to Traveller, can you not see that, by doing that, the value of the “adjustment to parent’s equity” has been adjusted by that additional allocation that would otherwise have been debited to the nci
Instead of charging 60% of the impairment to the parent and 40% to the nci, the allocation has been adjusted to 80% parent and 20% nci
The 20% that you are concerned about (the 20% transferred to the parent) is therefore being reduced within that 80% allocation
Better? If not, try me again
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