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Hi Mike,
In the introductory lecture on ‘More Complex Group Structures’ in both examples 1 and 2 when calculating goodwill of the holding company (H) in the sub-subsidiary (S2):
– why did we multiply the total cost of investment (ie when S1 bought S2) with the holding percentage of H in S1. Shouldn’t we instead have multiplied it by the interest of H’s in S2 [ie (1-TNCI)]?
– why didn’t we include NCI in the calculation of the goodwill of H in S2?
Thanks.
Hi,
The key is that we are reporting to the shareholders of the parent company. The parent’s shareholders own 75% of the subsidiary, so when we are calculating the goodwill in the sub-subsidiary we will include 75% of the investment as that is what the parent’s shareholders own.
The NCI has been used in both calculations. It doesn’t look obvious in the sub-subsidiary calculations as the shortcut method has been used as we’ve valued the NCI using the proportionate share of net assets method.
Thanks
Thanks for that Mike.
Also in Example 3 of Chapter 3 on pg. 22, I still don’t get why do we have to subtract 16,000 while calculating the value of NCI investment of the sub-subsidiary and I find it annoyingly confusing as I may be missing out on something basic so could you help.
Thanks again.
Hi,
We’ve already adjusted for 80% of the investment that the parent has in the subsidiary, the other 20% also needs to be adjusted for and we do this through the NCI. Personally, I’d adjust it through the NCI of the subsidiary as that is where we see the adjustment done normally.
If you’re curious as to why it is removed then think DR and CR. We remove the investment by CR Investment. We then DR Goodwill (80%) and DR NCI (20%).
Hope that helps.
Keep up the hard work.
Thanks
Hi Mike,
In the same example when you say that the NCI’s share of Dimitrys’ investment in Vitalis is double-counted (which is why we need to subtract $16,000 in W4), do you mean it is included in the NCI value of the subsidiary i.e. $23,000 and also in the NCI value of the sub-subsidiary of $61,360?
Thanks.
Hi,
Are you still working on this question?
I think Mike was saying that we only need to look at the NCI in the subsidiary only, so if we do not remove the NCI of the sub-subsidiary then it will be recorded in the group accounts twice. We therefore need to remove it.
Hope you’re OK with everything else on the syllabus!
Thanks
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