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Hi sir,
I am unable to understand the key words mentioned in your notes chapter no 7 . “proportionate,proportional and proportion.” It was also discussed in lecture that when does NCI do not pay for impairment of goodwill?
I am also not clear with what was the concept of Subsidiary’s goodwill. When are we not going to pay for goodwill?“Proportionate” and its relatives merely tells us that, when the directors of the acquiring parent company are trying to determine the value of the “other” shareholders’ investments (the nci investment), the nci shall be valued as simply their proportionate share of the newly acquired subsidiary’s fair valued net assets.
This is in contract (typically) to the value of the subsidiary in the minds of the new paernt’s board of directors who, typically, have just authorised the acquisition of the new subsidiary by the payment of rather more than the percentage acquired as applied to the subsidiary’s fair valued net assets.
In other words, the parent has paid an amount in excess of that proportionate fair value and can thus be seen to have acquired goodwill
Is that better?
1. So In the exams examiner will mention clearly that there is no impairment of goodwill to be paid by NCI?
2. Can you please elaborate these lines
“the parent company policy is to value the non-controlling interest as their proportional share of the subsidiary’s fair valued net assets at date of acquisition,” or
“the parent company policy is to value the non-controlling interest on a full or fair value basis.”Ema, have you read the course notes? Have you watched the free videos?
These are all explained, both in the notes and in the videos.
Please, do that and then, if you’re still in doubt, post again
In answer to your first question, NO, the examiner will not say clearly that there is to be no charge of goodwill impairment against the nci
The examiner WILL say either:
“the parent company policy is to value the non-controlling interest as their proportional share of the subsidiary’s fair valued net assets at date of acquisition,” or
“the parent company policy is to value the non-controlling interest on a full or fair value basis.”!Yes sir I am reading notes with the lectures.
Can you please explain the both above quoted lines. I am stuck in them that’s why I am unable to get the concept.“the parent company policy is to value the non-controlling interest as their proportional share of the subsidiary’s fair valued net assets at date of acquisition,” means that the nci will be valued at their proportional share of the fair value of the subsidiary’s net assets at the date of acquisition. Given that the subsidiary will have no value for goodwill included within its existing financial statements, that means that the nci will be valued at, say, their 40% of the fair valued net assets at the date of valuation
“the parent company policy is to value the non-controlling interest on a full or fair value basis.” means that the parent company directors acknowledge that the intangible, so-far-unrecognised asset of goodwill attributable to the subsidiary should be allocated between both the parent and the nci. Typically the question will say something like “for these purposes the share price of the subsidiary immediately before acquisition is to be taken as being a fair reflection of the value of the nci investment”
OK?
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