Dear Sir,
I have a real life example as below:-
Papaya share capital at 1st August 2013 were $150,000 and retained earnings loss of ($150,000). Mangoes invested $225,000 and represented 60% of Papaya share capital @DOA. The total share capital of Papaya @DOA is now $375,000.
As at 31 Dec 2013 (financial year end) the retained earnings loss were ($310,000) in Papaya's book.
A) If I am to compute goodwill, is below method correct?
Method 1
Cost of Investment $225,000
Value of NCI Investment (40%of $225,000)? $90,000
Total $315,000
Less: FV of Papaya NA @ DOA (Assume no FV adj @DOA)
Share Capital $375,000
Pre-Acq retained earnings ($150,000) ($225,000)
Goodwill (CSoFP) $90,000
Or the value of NCI investment should be $150,000
Method 2
Cost of Investment $225,000
Value of NCI Investment (40%of $225,000)? $150,000
Total $375,000
Less: FV of Papaya NA @ DOA (Assume no FV adj @DOA)
Share Capital $375,000
Pre-Acq retained earnings ($150,000) ($225,000)
Goodwill (CSoFP) $150,000
B) If I am to compute NCI (40%), is below computation correct?
Method 1
Value of investment $90,000
Share of Papaya post acq retained earnings
($310,000-$150,000)*40% $64,000
Total NCI (CSoFP) $154,000
Or
Method 2
Value of investment $150,000
Share of Papaya post acq retained earnings
($310,000-$150,000)*40% $64,000
Total NCI (CSoFP) $214,000
C) So shall we consider 40% of goodwill in NCI? I notice in the course we only reflect impairment of goodwill in NCI.
Thanks in advance.
Ask the Tutor ACCA FR
Goodwill and NCI
10y ago#1Well, Mei Lin! You seem to me to be SO confused that you've now got me confused as well.
There seems to be a number of things either missing or wrong in your post :-((
You haven't told me the date of acquisition - it's not clear if it's 1 August, 2013, 31 December, 2013 or even neither of those 2
In my mind, 1 August appears to be the correct one. But then I'm in TOTAL confusion! Because your post then says "Mangoes invested $225,000 and represented 60% of Papaya share capital @DOA. The total share capital of Papaya @DOA is now $375,000"
Another bit that has thrown me .... in Method 2 you have written "Value of NCI Investment (40%of $225,000)? $150,000" Now, even without a calculator I can see that 40% of $225,000 does not equal $150,000
So do I presume that you meant "40% of $375,000 = $150,000" where $375,000 is the value of the Papaya share capital at the end of the calendar year (which may also be the date of acquisition)
In part B of your question, when calculating the nci share of post-acquisition retained earnings of the subsidiary, you have taken 40% of the difference between retained earnings as at 31 December, 2013 ($310,000 loss) compared with the retained earnings as at 1 August, 2013 ($150,000 loss)
So, 40% of $160,000 and that's correctly calculated as $64,000
BUT IT'S A LOSS since acquisition
In part B, therefore, the adjustment for the nci share of post-acquisition results should be deducted from whatever figure we agree on as their value as at date of acquisition
Part C - I have no idea what you are asking here! "So shall we consider 40% of goodwill in NCI? I notice in the course we only reflect impairment of goodwill in NCI"
10y ago#2I've just read my earlier response - when Mangoes invested $225,000, in return they were issued with 225,000 new Papaya $1 shares - is that correct?
So at date of acquisition on 1 August, 2013 the issued share capital of Papaya moved from $150,000 to $375,000. Am I correct?
Now that makes a bit more sense. But it's WAY beyond an F7 question - it's not even asked at P2
Give me a few minutes and I'll think about the problem - my initial reaction is that nci value of investment at date of acquisition is $Zero - and I'll get back to you
10y ago#3OK ..... net assets at DOA were $Zero ($150,000 share capital and $(150,000) retained earnings deficit)
Then along comes Mangoes and pays $225,000 for 225,000 new $1 shares in Papaya
At the year end 31 December, 2013, Mangoes has suffered further losses of $310,000 - $150,000 = post-acquisition losses of $(160,000)
Working W2 Goodwill ...
Cost of acquisition 225,000
Value of NCI Zero
Total cost / value 225,000
Less NA @ DOA
Share capital 150,000
Retained earnings (150,000
FV of NA @ DOA Zero
Goodwill 225,000
Working W3 Consolidated Retained Earnings
Mangoes' own ?????
Mangoes' share of Papaya post acquisition retained loss
60% x ($310,000 - $150,000) = $(96,000)
CSoFP ????? - $96,000
Working W4A NCI (40%)
Value at date of acquisition $Zero
Share of Papaya post-acquisition retained loss
40% x ($310,000 - $150,000) = $(64,000)
Value of NCI investment $(64,000)
There is no indication within your post of any value for goodwill impairment (personally this looks like a lemon of an investment by Mangoes in Papaya!)
The question is .... is the nci valued on a proportionate basis.
I suppose the answer is "Yes" because their value at date of acquisition was their share 40% of the fair valued net assets ($Zero) so any impairment of goodwill should be attributed entirely to Mangoes
Does that satisfy you?
Dear Sir MikeLittle,
First of all, I would like to apology for my confusion created but you take the pain in helping me step by step. I really appreciate your effort and time.Yes, date of acquisition is 1st August 2013.
Thanks so much, I love you from the bottom of my heart. You help to solve my doubt.
I also take note, at the date of acquisition, whatever Mangoes (parent) pays $225,000 for 225,000 new $1 shares in Papaya were not consider as part of "fair value of Subsidiaries NA @DOA".
Cheers,
Mei Lin
10y ago#5You're welcome, Mei Lin
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