- This topic has 5 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
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 $315,000Less: 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 2Cost of Investment $225,000
Value of NCI Investment (40%of $225,000)? $150,000
Total $375,000Less: 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% $64,000Total NCI (CSoFP) $154,000
Or
Method 2
Value of investment $150,000
Share of Papaya post acq retained earnings
($310,000-$150,000)*40% $64,000Total 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.
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”
I’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
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 225,000Less NA @ DOA
Share capital 150,000
Retained earnings (150,000FV 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
- You must be logged in to reply to this topic.