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The goodwill calculation is as follows according to ACCA
1.Fair value of the Consideration paid
2.Fair value of the Non Controlling interest
Less:
3. Net assets of the Subsidiary at acquisition dateNow the doubt is regarding point 2. I am not sure what does Fair value of the Non Controlling Interest paid means. Are we paying extra money to the subsidiary.?
The fair value of the NCI is the value of the NCI’s shares at the date of acquisition. Nobody is paying for them.
Deciding on a fair value can be a problem, but this is not examinable in Paper F3 – you will be told the fair value of the NCI.The free lectures on consolidations will help you.
Thanks John for the Prompt Answer. I am trying to understand in a more layman terms.
I thought that the Goodwill is the amount that the company had given after reducing the net assets of the subsidiary. I thought that the Shares in the net assets cover the Non controlling interests too.Net asset calculation of Subsidiary
At Acquisition Date At Reporting Date
Share Amount $$ $$
Share Premium $$ $$
Retained Earnings $$ $$Isn’t the Non Controlling interest are a part of Shares before it became non controlling interest. Then why do we have to consider the FV of the non controlling interests.
Sorry if my question is confusing.Goodwill is the difference between the full value of the subsidiary at the date of acquisition and the value of its net assets at the date of acquisition.
The full value is the total of the amount paid by the parent for their shares in the subsidiary, plus the fair value of the NCI.
The value of the net assets is (as always) equal to the share capital plus reserves.
I do suggest that you watch the free lectures.
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