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Sir, NCI will gain increased (in disposal) or decreased(in acquisition) net assets right?
Then why do we take proportion of net assets only in acquisition and net assets + goodwill in disposal?Shoulnt the formulas be the same?
Also, If we use fair value of net assets, then will we need to be mindful of goodwill as well?
Thanks
Hi,
I don’t think I quite follow your question. Can you be a bit more specific with one of the examples somewhere to help?
Thanks
Sir,In example 5 of chapter 7, when Riley acquired additional 10% of Hulme, the total NCI was 30/40 of the original NCI (Which is clear as the NCI have reduced).
When Riley disposed 20% of Jones, we take 20% of Net assets and goodwill and add it to NCI (Which is also logical).
My question is that
1)If NCI is being valued using fair value basis, then why for disposal of the 20% do we not use the same formula as the one for acquisition? (30/10)
2) Shouldn’t we use the 20% disposal method calculation when NCI are valued at proportionate of net assets method?
Thanks
There is no logical base in between the differences of the formula being used to calculate reduction or increase in NCI.
It’s just what the examiner does. There are many other areas where examiner has not followed the usual mathematical concepts.
I hope this answer might help you.
Hi,
I agree with the comment made above but also when we are disposing of ownership in the subsidiary we are disposing of part of the net assets and therefore need to base our calculation on the net assets value and not the value of the NCI.
Thanks
You’re welcome. It is a tricky part of the syllabus but one that once committed to memory and a few questions have been worked, you’ll be fine come the exam.
Keep up the hard work.
Thanks
Ok – so I hate to confuse anyone at this point with only 20 days until the exam , but I’ve seen both methods used.
For exam: Rose Q1 06/2011 , consolidated SOFP, at the end of the year went from 70% to 80% Control, the NCI at year end was adjusted, not the FV of Net assets + Goodwill
Traveller – Q1 12/2011 SOFP
Again with this was adjusted from 60% to 80% at the tear end. The NCI was adjusted downHOWEVER – Ashanti 06/2010 SOCI
In this question they disposed of the first subsidiary by 10%, going from 70% to 60 % at the year end, they used the net assets + Goodwill to calculate the adjustment Parents equity. Although, this would not have affected the SOCI as the adjustment took place at the year end and only effects the parent’s equity (SOFP).The same instance happened with another exam – a recent one, but I cannot remember the name now. I’ve done so many I’m losing the will to live…
But, if you could shed some let on the best way to calculate the part disposal or acquisition of NCI, that would be great…
Hi,
You’re missing the key point in that the calculation is different for step acquisitions and step disposals.
In the first two we have step acquisitions and so we will look at transferring from the NCI. In Rose it will be 10/30 and in Traveller it will be 20/40 of the NCI.
In Ashanti we have a step disposal and so we will look at transferring to the NCI from the net assets.
Thanks
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