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in the suggested answers, (working 3) they have indicated unrecognized NCI (20%) for captive as they are calculating Impairment of goodwill. am failing to figure out how they are coming up with it..please help me understand
Without me looking up the question and answer, let me see if I can guess.
Is the nci valued on a proportionate basis? In which case, no goodwill is attributable to them
But if goodwill WERE attributable to them, how much would it be
I’m guessing that it’s 20% where the parent’s goodwill is 80%
So notional goodwill for the nci is one quarter of the parent’s share of goodwill (20%/80%)
There is an article about this by the examiner some 2 years ago (from memory) but I fail to appreciate properly the points that the examiner is making. For example he has the cost of a 60% acquisition by the parent as say $300,000 and the value of the remaining 40% held by nci as say $350,000
This scenario is irreconcilable in my mind – that a 40% holding should be valued at greater than the cost of 60%!
For that reason I have pretty much discounted the scenario as improbable.
Fortunately the situation rarely appears in the exam given that most (if not all) ncis are valued on a fair value basis
Does that answer it or am I barking up the wrong tree?
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