- This topic has 11 replies, 3 voices, and was last updated 11 years ago by
.
- Posts
Hi,
I have a parent ABC who on 1 Jan 05 purchased 75% of the issued share capital of XYZ when retained earnings were £72k.
ABC BS as at 30 Sep 06:
R&D 230
Goodwill (Purchased) 48
Goodwill (Unpurchased) 50
Investment in XYZ 525Share Capital 6000
Retained Earnings 1344XYZ BS as at 30 Sep 06:
Share Capital 800
Retained Earnings 4721) When calculating goodwill I’m getting 129 negative, nothing close to the 48 and 50 in the BS.
Consideration 525
FV NCI (25% x 872) 218
743Net Assets Acquired 800
Retained Earnings 72
872
Goodwill -1292) ABC has inventory of 594 as at 30 Sep 06, which include goods worth 108 bought from XYZ at manufacturing cost + 50%
Can you shed some light on the calculations please?
Thanks!
I’m getting 129 negative too!
Pup of 50/150 x 108 = 36 pup to be deducted from combined inventory and from XYZ retained earnings
Ok?
Chef the information that you have given for the goodwill calculations – for example, is the nci on a full fair value basis rather than proportional?
Thanks for your feedback!
Re: Stock I’ve worked it in the meantime and got 36 too
(Dr: Revenue 108, Cr: COGS 72, Cr: Stock 36)How should I account for negative goodwill given the limited info?
Re: NCI method to use, the question doesn’t specify either of which to use, except that to prepare the financial statements using the acquisition method… How would I know which of the 2 methods to use please?I have jot it down as:
NCI Working
FV NCI at acq 218
NCI post-acq (25% x 400) 100
Total 318Group RE Working
ABC RE 1344
XYZ RE 300
Total 1644Thank you!
The question will tell you whether to use proportionate method or full, fair value method.
I think there are one or two examples in the course notes where I tell students to assume proportionate method if nothing is stated in the question. Those examples are in the notes to illustrate other principles and goodwill / nci calculation is not the main point of those exercises
I will need to prepare the BS and PL for this so I will still need to do their calculations…
Are the above calculations correct workings given the information provided?
Also please is there a suggested approach how to account for negative goodwill?
Thanks!
Your workings seem to be ok.
As for negative goodwill, it should be credited to retained earnings at the first opportunity ie in the first year end accounts after negative goodwill arose. This treatment is undertaken AFTER a review as at consolidation date of the fair values of the assets acquired
Hello
Could you tell me why is negative goodwill credited to retained earnings please?
Thank you.
Because it’s like a profit. We’ve just spent money, say $100,000 and bought assets with a fair value of, say, $120,000.
That gives us negative goodwill but surely it’s like a profit?
Credit cash $100,00 and debit sundry assets (on consolidation) $120,000
What are you going to do with the missing $20,000 credit? Take it to retained earnings!
Ok?
- You must be logged in to reply to this topic.