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Hi
Can anyone help me with the question below?
B acquired 40% of C on Jan 2007 (retained earning 100k and share capital 100k). Later in Dec 2007, B further acquired 20% of C (retained earning 150k). A acquired 80% of B (retained earning 400k and share capital 100k) on May 2009, C’s retained earning is 300. In preparing the consolidation statements for A on 31 Dec 2010, how do i calculate goodwill? Do i calculate goodwill at the point when A acquired B May 2009 where the effective control in C is 48% and TNCI is 52%?
Is there a need to show the working & answer for “B acquired 40% of C on Jan 2007 (retained earning 100k and share capital 100k). Later in Dec 2007, B further acquired 20% of C (retained earning 150k)” in preparing the consolidation statement for A on 31 Dec 2010? The step acquisition of C from 40% to 60% in B would required us to calculate the goodwill.
Thank you.
You only need to consider, for the consolidation of the A Group, the situation as at the date A acquired control of B
Hi Mike
Let’s say:
B paid 80k to acquire 40% of C and another 40k to acquire 20% of C.
A paid 500k to acquire B on May 2009goodwill calculation:
A in B = 500k (COI) + 100k (NCI) – 100k (share captial) – 400k (retained earning) = 100k
B in C = (80k + 40k) x 80% (COI) + (100k + 300k) x 52% – 100k (share capital) – 300k (retained earning) = -96
Is my calculation okay? do i write off the negative goodwill?
With all these percentages and figures, it’s quite tricky to follow! The ultimate point is that when A acquired their interest in B in May 2009, they were acquiring the B group. There’s no direct investment in C by A
So the goodwill calculation is cost of investment in B plus the nci in B at fair value compared with the fair value of the B group net assets excluding any goodwill that arose on B’s acquisition of C. That goodwill is omitted because it is not an identifiable asset of the B group so far as A is concerned
By that omission, the fair value of the B group net assets is reduced thus increasing the goodwill arising on the acquisition of B by A
I think that does it
Ok, calculate the consolidated retained earnings of the B group as at the date that A acquired shares in B
Add on to that the B share capital and any other consolidated reserves in the B group together with any necessary fair value adjustments to the carrying value of the B group net assets
Compare that total with the A cost of acquisition plus the fair value of the nci in B
That will give you consolidated goodwill ready for when you are going to prepare the financial statements for the A group
Better?
Hi Mike
This is better.
In this case, i dont need to calculate the goodwill for C?
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