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Afternoon,
Perhaps the daftest question of the afternoon but why in a non foreign S2 do we adjust the consideration of the group share yet in a foreign S2, we don’t adjust consideration in the same way?
In addition and in relation to NCI, if proportionate share, the holding co bears all impairment of goodwill and if Fair Value then it is shared, in which case what is the purpose of notional goodwill see Trailer (JUN13) where the sub takes a share of what was proportionate goodwill.
I was really beginning to think I had got the hang of this, perhaps not!!
Thanks
Hi,
I’m not sure I follow your first point as I’m not sure what you’re referring to when you mention the group share. The group share of what? What do you mean by S2 also?
You’re correct on your understanding of the allocation of the impairment, well done. The notional goodwill is required when performing an impairment of a subsidiary, where it is measured using the proportionate share method. To calculate the carrying value of the subsidiary we need to include the value of the goodwill and that needs to be at the full value of the goodwill, hence we need to notionally gross it up.
It wouldn’t get any more difficult than it does in the Trailer question.
Hope that helps clear it up a bit and if you put in a bit more about your first point then I’ll help with that too.
Thanks
Hi sorry,
The first part is looking at a subsidiary of a subsidiary (S2) in a complex group structure. It was my understanding that when calculating the goodwill in the sub-sub (S2) that you take the group share of the investment made by the subsidiary (S1)… so
Parent holds 70% in Sub (S1), (S1) holds investment of $50m in (S2), NA @ acq in S2 were say, $42m and NCI was $13m….
FV consid (70% x $50m) $35m this is the groups investment in S2.
NCI $13m
NA acq. ($42m)
Goodwill $6mIn some (all) of the foreign sub sub (S2) examples I have seen the cost of investment isn’t adjusted from the groups perspective, why would this be???
Thanks,
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