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Hello,
Could you tell me why the value by which an asset is revalued down in a subsidiary is still deducted from goodwill calculation as is the value of an asset which is revalued upwards please?
Hi
The reason is that, on acquisition, the net assets of the acquiree must be valued at fair value so, if the fair value is lower than carrying amount, we must make a deduction from the book value of net assets to arrive at the fair value of those assets
If you remember the workings that I write on the screen you may notice that I try always to write FV of SNA @ DOA
I try to remember to emphasise always that it’s the fair value that we must consider, not the book value
OK?
But let’s say that at the date of acquisition, the Land of the subsidiary is revalued upwards by $1.2m and the PPE of the subsidiary is revalued downwards by $0.8m.
So in the goodwill calculation, both the revaluation gain on the land and the loss on the value of PPE are deducted from the goodwill calculation, why is that?No, the $1.2m land value increase will be reflected by increasing the aggregate fair value of the subsidiary’s net assets at date of acquisition. That, in turn, reduces the value of the goodwill
The decrease in the fair value of the PPE by $0.8m will have exactly the opposite affect
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