Consolidation statement of financial position measuring of NCI

Hi,

Good question. It is essentially because when we’re using the FV method the NCI figure is always going to be higher and this causes the goodwill to be higher too. The higher/additional goodwill when this method is used has to be attributable to the NCI so let’s try and use some numbers to demonstrate.

Say we buy 80% of a subsidiary for 150 and its net assets at acquisition are 100. Under the proportionate share of net assets method the goodwill is 70 (150 + 20 (20% x 100) – 100). This is P’s goodwill as essentially P has paid 150 to get 80 worth of net assets (80% x 100 )to give the 70 goodwill, where as the NCI is worth 20 and they are getting their 20% share of the 100, so the NCI goodwill is nil (20 – 20) as what they get is what it is worth.

If we keep the numbers the same but say that the FV of the NCI is 30 then the goodwill is now 80 in total (150 + 30 – 100). P’s goodwill is still the same as they have paid 150 to get their 80% ownership of the net assets (150 – 80 = 70) but where has the extra 10 of goodwill come from as previously it was 70 but it is now 80. This additional 10 is the NCI goodwill as the NCI is worth 30 and they are getting their same 20% share of the 100 net assts, so 30 – 20 =10. So when using the FV method we have both the parent’s goodwill of 70 plus the NCI goodwill of 10.

Hope that clears it up a bit for you.

Thanks