Goodwill and NCI

Well, 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”

OK ….. 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?

You’re welcome, Mei Lin