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Dear Sir,
I need clarification in regard to the two methods of calculating goodwill.
As you thankfully explained at chapter 3 ,we have full and partial method and the difference in the 2 is in the value of the NCI.
In example 3 “a” p.16, the question stated that the fair value of the NCI is 700m and the fair value of the net asset is 3400.
in the answer, we have used the following value for each method.
Full goodwill : 700m
Partial : 680m (3400*0.2)My points are as follow:
a-Why both figures are not equal in the sense that both are been fair valued as at the acquisition date, should not the NCI fair value been be 680m , why the question state its 700m
b-My understanding of the logic behind the full goodwill method is that we calculate the goodwill which related to both the controlling interest and the NCI , what is the logic behind the NCI having a goodwill in the sense that goodwill calculated only when we are acquiring a controlling interest and paying extra over the fair value of the net asset
I would really appreciate clarifying above points so i can have a better insight over the matter
Personally I think that full goodwill is a bit silly (but don’t write that in the exam). It assumes that the NCI ‘paid’ for their share of the business (which they did not).
The logic for recognising it is supposedly consistency – if we are consolidating 100% of the net assets, we should consolidate 100% of the goodwill, even if this means that we have to guess the FV of the NCI.
When IFRS 3 was developed the authors could not agree and eventually agreed that either method is acceptable. I think that historically full goodwill is associated with US accounting and partial goodwill with UK accounting.
Thank you Stephen,
What about my first point, why the 2 values of the NCI are different
Further, and just to confirm, the value of the NCI that we will use at the consolidated level on the acquisition date will be the same as the one we use to calculate the goodwill > will use a % of the fair value of the net asset value if its proportionate goodwill and will use the fair value of the NCI as provided in the question if its full fair value method.
Thank you
Prop GW – only on P’s share of S.
Full GW – on all of S, including NCI.So full GW will be bigger.
The NCI at acquisition will be the same figure as the figure used in the GW working (as you say).
Thank you Stephen.
I still have confusion in the NCI value at the 2 methods, the question state that the fair value of the NCI is 700 m , why this is not equal to 20% of the fair value of the total net asset of the subsidiary.(680m)
What is the logic behind this variation
NCI = FV of shares not owned by parent
NA = FV of total NA of subsidiaryThey are completely different things.
I understand that NA is different from NCI , but 20% of the fair value of NA should not be the same as the fair value of NCI?
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