- June 3, 2020 at 7:52 am
Hope you are fine. I have watched your nice lectures on Financial Reporting. They are very nice.
I am completely OK with the calculation of impairment on full goodwill method. but I think it is not precise!!! Would you please consider this example:
Fair value on subsidiary net asset = 100
Parent (80%) = 150
NCI (20%) = 21
So in this case the goodwill will be 150+21–100 = 71,
So we know 70 of the goodwill is for parent and 1 for NCI. ( Please let me know if this sentence is correct as it is the base of my idea!)
Now suppose goodwill has to be impaired by 10%: So the impairment loss=71*10%= 7.1.
According to what the book (and your approach) says:
we should deduct 7.1*80%=5.68 from parent and 7.1*20%=1.42 from NCI.
But according to my solution:
we have to deduct 70*10%=7 from RE and 1*10%=0.1 from NCI. (Based on my idea above).
In the both method the total of impairment is 7.1. but its allocation to RE and NCI is different. In my approach the goodwill of parent was 70 so it should be impaired by 10% and the goodwill of NCI was 1, so it should also be impaired by 10%.
But if we do the book (and your approach) we are in fact deducting lesser amount from RE and more from NCI.)
Your help would be much appreciated.
ThanksJune 4, 2020 at 5:04 pm
The impairment of 10% is applied to the full goodwill before it is then split between the parent and NCI. We don’t apply the 10% to the already split goodwill calculation as the initial impairment calculated has been done on the full goodwill and not the parent/NCI goodwill.
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