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Hi
I came accross two different ways to calculate the Goodwill when the amount of investment in the “P” statement of financial position is higher than the amount paid to acquire the share of S
To better explain my statement I gave you both example:
Text book.
Investment account shown in P Balance Sheet 8000
Amount paid to acquire S given in the question 3,500Amount taken for the Goodwill calculation 3.500.
Different between 8000-3500=4500 is shown in the CSFP under the account invenstmentIn the examkit
Investment account shown in P balance Sheet 400,000
Amount paid to acquire S given in the question 300,000Amount taken for the Goodwill calculation 400,000
No amount shown int he CSFP under account investmentMy question is: Which one is the correct way how to prepare the CSFP and work out the Goodwill?
Could you please help me tell me which is the correct and explain why
Thanks a million
Gabbi
There is only one way to calculate goodwill – the way that is in our lecture and our Course Notes.
Without seeing the whole of the questions that are quoting from, I cannot be sure what they have done (or whether they have made a mistake or a typing error).
Two things might be relevant.
In your first example, maybe P had invested in more than one company. If S is a subsidiary then the amount paid for the shares in S will equal the amount on P’s balance sheet for the investment in S, and this will not appear in the consolidated statement.
However, if the remaining 4500 was investment in other companies that are not subsidiaries then this would appear as investment in the consolidated statement.With regard to the second question, then either there is a mistake in your book or you have misread (or missed out something else mentioned in the question).
I really can’t say any more – I explain what we do in my lecture and the Course Notes, and the method is correct. I am not responsible for what might appear in other books.
Hi
If I understood correcly the amount to use for the calculation for the goodwill is the amount paid to acquire the subsidiary, whatever is the amount shown in the P balance sheet. If the one in the balance sheet is higher, then the different will be reported in the consolidate statement.
I understand that you explain what you do in your lecture, I only want to understand the correct way whatever the book says.
Below the question, could you please confirm if my work out is correct
The statement of financial positionf for P and S at 31 december 2006 are
NCA P S
Property 300,000 225,000
Investment 400,000 –Share capital 80,000 60,000
Share premium 20,000 10,000
R earning 295,000 250,000P acquired 80% of the ordinary share of S for $300,000 on the 1st of January 2012. At the acquision date the retaing earling of S were 150,000. The fair value of the non controlling interest in S at the acquision was $80,000.
At the date of acquision the fair values of land was 180,000 with a cost of 150,000.
Base on my understanding the Goodwill should be as below
Many paid to acquire 300,000
NCI fair value 80000Share capital (60,000)
Share premium (10,000)
Land Fair value (30,000)
Retained Earning (150,000)Goodwill 130,000
100,000 will still be in the consolidated financial statement under investment account.
Thank you
Gabbi
What you have done is correct.
It assumes (because there is no other choice) that the extra 100,000 investment is investment in another company that is not a subsidiary.
(Although I think it is probably more likely that the book has made a mistake 🙂 )
Hi John. I have a question from a similar topic!
On 1 January 2011, Black acquired 76,500 ordinary equity shares in Foxworth for €208,000. On that date, Foxworth’s retained earnings amounted to €88,000 and the fair values of Foxworth’s net assets were equal to their carrying values.
Black measures non-controlling interests at dates of acquisitions at the proportion of identifiable net assets.
At 31 December 2013, the statements of financial position of the two entities were as follows:
Black Foxworth
Net assets € €
Sundry net assets 165,000 213,000
Investment in Foxworth 208,000
373,000 213,000
Equity
€1 ordinary equity shares200,000 85,000
Retained earnings 173,000 128,000
373,000 213,000
Foxworth’s equity share capital has remained unchanged since 1 January 2011. Goodwill has not been impaired since the date of acquisition.
What amount should appear on the consolidated statement of financial position at 31 December 2013 for goodwill?Solution € €
Cost of investment in Foxworth 208,000
Non-controlling interest (10%) 17,300
225,300
Net assets of Foxworth at date of acquisition:
€1 ordinary equity shares 85,000
Retained earnings 88,000
(173,000)
Goodwill 52,300The part I cant understand is how he calculates the Non-controlling interest part? 10%. Can anyone tell me how its done. Thanks very much for any help!!
Net assets are equal to share capital plus reserves.
At the date of acquisition, the share capital was 85,000 and the retained earnings were 88,000 – total 173,000.
So….the net assets at the date of acquisition were 173,000.
10% is 17,300.Thanks Christine, but you arent given 10% in the question. How do you ascertain to get 10%?
They are $1 shares and they are 85,000 in total.
If Black owns 76500, the NIC hold the other 8500. That is 10%.
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