- This topic has 5 replies, 2 voices, and was last updated 13 years ago by
.
- Posts
Can someone please explain why is the apportionment of gain on foreign currency translation for goodwill at acquisition in Kaplan text book is based on goodwill portion of each party (for example parent´s goodwill/total goodwill * forex gain)
where…
In the June 2011 Q1 answer is using the % of ownership
Please check on WORKING 2“Goodwill is treated as a foreign currency asset, which is retranslated at the closing rate. Goodwill in the consolidated
statement of financial position at 30 April 2011 will be 31 million dinars divided by 5, i.e. $6·2 million. Therefore an
exchange gain of $1·03m will be recorded in retained earnings ($0·54m) and NCI ($0·49m). “That 0.54 is from 1.03m * 52%
Why this inconsistency?
Thank you.
Hi
i don’t have the question in front of me but ….
maybe, in the Kaplan text, it happens that the nci investment is in equal proportion as the shareholding when compared with the parent’s cost of investment, or ….
in the June 2011 solution, the parent’s share / control is 52% and the goodwill forex gain is apportioned on a shareholding basis of 52 : 48
Either of these situations could answer the situation you have set up but, as I stated at the start of this response, I don’t have the question in front of me.
Whatever, the forex gain on goodwill should, so far as I am concerned, be split / apportioned on a shareholding basis
Hope that helps
Dear Mike,
Thank you for your answer. Here is what the Kaplan text book says on one of its example:
Goodwill at fair value
5,999 Shillings @ 5.5 opening (or acq’n) rate….. 1,091
5,999 Shillings @ 5.0 closing rate……………………1,200
………………………………………………………………….._____
Exchange gain split in proportion per W3 (5:1) ….. 109
for parent .. 91
for NCI …….18W3 shows that Proportionate goodwill for Parent is 5,000 and goodwill for NCI is 1,000 (so it is 5:1)
Based on that Kaplan text book is suggesting that the share of FOREX gain from Goodwill is apportioned based on the Goodwill´s apportion instead of the % of ownership/share.
The exam answer is suggesting the apportion of % of ownership.
In your opinion, which one is correct?
Thank you again.
Ratna
Hi Ratna
If goodwill attributable to the nci is 1000, then the nci MUST have been valued on the full fair value basis. ( If it had been proportional, nci would have been zero)
So, now when you are addressing the issue of an impairment, that should be allocated on shareholding ratio basis. Is ownership on a 5:1 ratio ?
Ok. Thank you Mike.
I think I got it. Your suggestion of allocating the impairment is the same as the exam question answer.
Maybe the Kaplan text book is wrong.
- You must be logged in to reply to this topic.