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Sir why is it that we don’t deduct goodwill impairment related to NCI from Retained Earnings of Subsidiary?
if subsidiary is impaired than some part of impairment will go in retained earnings and some in the Nci account.based upon the parents shareholding.
Shadowfax, because goodwill arises on the acquisition of the subsidiary. It WAS an asset of the subsidiary – intangible and unrecognised – but then the parent bought that asset by paying a premium on acquisition. So now the asset is owned by the parent and the parent’s directors consider whether the asset has been impaired or not.
If it has been, the impairment is to reduce the value of the asset in the consolidation and therefore also to reduce the consolidated retained earnings (Dr working W3 Consolidated Retained Earnings and Cr Goodwill Account)
This means that the impairment adjustment goes nowhere near the retained earnings of the subsidiary
Is that ok?
Bilal, that’s only correct where the nci has been valued NOT on a proportionate basis. If nci investment is their proportion of the fair value of the subsidiary’s net assets as at the date of acquisition, then the nci has NO goodwill and thus we cannot charge them with their share of any impairment in the goodwill
OK?
but when the examiner calculate the impairment it use notional Nci and add it in the net assets and goodwill of the subsidiary.even though NCI was calculated on proportionate basis.frankly speaking i also didnt get its sense but now when ever there is impairment of subsidiary with proportionate Nci i calculate notional Nci or Unrecognised Nci. what else should i do?
You’re right – and I don’t understand why that’s necessary either! Until someone can direct me towards a definitive article (preferably written by the F7 or P2 examiner!) then I shall continue to avoid this apparently unnecessary grossing up and then deduction of the notional goodwill
Can anyone point me in the direction of such an article? I would appreciate if you could send me a link!
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