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Hi, I am looking at the June 2013 paper – Q1, working 3 – Trailer owns 60% of Park – can you advise why when calculating the Unrecognised non controlling interest you divide 40%/60% & multiply by the goodwill calculated please?
Hi – yes, that’s interesting. The reason it’s there is to determine if there’s any impairment and we therefore need to “gross up” the value of the subsidiary’s goodwill by the notional amount attributable to the nci. In the Trailer question, nci is valued on a proportionate basis but, for the purposes of checking the possible impairment of the value of the subsidiary, the value of the subsidiary’s assets is increased by this notional goodwill attributable to the nci.
The calculation is based on the fact that the parent has a 60% holding, the nci 40% So, to calculate the notional goodwill attributable to the nci is 40/60 of the amount attributable to the parent.
But then …… having done the calculation, and now facing the allocation of the impairment, we deduct the notional nci goodwill
The actual figures in the calculation are (as I remember) 80 goodwill attributable to the parent, 40/60 * 80 (53.3) attributable to the nci giving an impairment of 300.3. By deducting the 53.3 notional nci goodwill, that leaves us with 247 impairment entirely attributable to the parent
OK?
Hi,
In relation to this query. In the December 2011 paper, it is a very similar scenario whereby Traveler acquires Captive. Similarly in this case the unrecognised goodwill on NCI has been added to the Impairment calculation, however there has been no deduction of the notional goodwill on NCI after that which contradicts with the June 2013 paper.
Can you please let me know why this is?
Thank you
Before I go and download the exam, can you confirm that the impairment calculation showed that there WAS an impairment?
Hi Mike,
Yes The impairment calculation showed that there was an impairment, it was very much the same scenario as the JUne 2013 papaer but for some reason this time there was no deduction of the NOtional Goodwill on NCI.
Thank you in advance for your help
Hi Mike,
Did you have a chance to look at the question?
Sorry to bother you again but it is getting very close to the exam!
Thank you
The point about removing the notional goodwill in order to arrive at the impairment figure for the parent’s share is actually dealt with consistently.
There is an essential difference between the two examples. In the first example the impairment related to both goodwill and to other assets so notional goodwill together with actual goodwill was dealt with as a separate exercise.
Find total impairment, deduct TOTAL goodwill, the rest is split parent / nci. The TOTAL goodwill is then allocated parent / notional nci and only the parent share is actually recorded
In the case of Traveller, there’s no need to deduct notional goodwill. The goodwill impairment allocated to the notional nci share is not shown, but the amount of the goodwill that is impaired is correctly restricted to just the parent’s share ie 80% of 76.25
Ok?
Hi Mike,
Thanks for the explanation. So do you think it would be fine to say as a rule:
1) If the impairment relates to Goodwill and other assets, Unrecognised NCI/Notional Goodwill on NCI will come into the equation and will need to be deducted at the end of the calculation
2) If the impairment only relates to Goodwill, then there is no need to deduct the unrecognisedNCI/Notional Goodwill on NCI at the end of the calculation
Thank you
…..(tacked on to the end of your number 2)) “but there IS the need to take only (say) 75% of the goodwill impairment to the retained earnings. There is no accounting for the remaining 25% impairment of the nci notional goodwill”
Ok?
Hi Mike,
Yes understood thanks for your help that was very useful.
Thank you once again.
Hi,
May i ask about the effect of Unrecognised non-controlling interest (40%/60% of $80m)
for June 2013 question ?Does it means to allocate the imp to gw and ppe ?
Hello, please I noticed in the calculation of the goodwill. The total equity of trailer was used as the net asset while in Dec 2012, question Minny; the total asset of the subsidiary was used in arriving at the carrying amount which was compared with the recoverable amount.
Isn’t it because, unusually, the examiner directed you towards considering total assets in Minny rather than total equity as in Trailer?
Mike Hi. In the above correspondence you have stated that “By deducting the 53.3 notional nci goodwill, that leaves us with 247 impairment entirely attributable to the parent”
However 66.8 out of that 247 is nci portion of ppe impairment (167*40%) as indicated in NCI workings. Thus its nci expense rather than Parent’s. Do i sound correct?
Thanks
Yes – you’re correct (I believe!). Do I not say in that post “as I remember”?
Working primarily on an iPad it’s very awkward to look up the actual question so, if I can answer it from memory, then I do.
But you have now pointed out a bit that slipped my memory and I thank you for that 🙂
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