NCI calculation on proportionate net assets

ASalawi sayed4y ago

Hello Mr Chris , How are you, In the following example there is an impairment of goodwill But the issue is the calculation of NCI , I found in the answer that they calculated the the NCI by taken orginal subsidiary Capital + retained earnings at ACQ x 30% and thats really correct ,which gives 82500 But in the year end NCI now here we have to take the original capital of subsidiary +post acq profit x 30% or we have to build up on the total of the NCI at acquisition which was 82500 +200000-125000=75000*30% =22500 less imp of goodwill (50000 x 30%)15000=7500 then the toal =90000 please help in this as it is comfusing, Thanks, ———————————– Q Watts Co acquired 70% of the sh are capital of Pilkington Co on 1 January 20X2 for $300,000. The goodwill arising on consolidation has been impaired by $50,000 as at 31 December 20X5. The share capital and reserves of the two companies as at 31 December 20X5 were as follows: Watts Co Pilkington Co Share Capital $400,000 $150,000 Retained earnings $300,000 $200,000 At the date of acquisition Pilkington Co had retained earnings of $125,000. Watts Co measures the non-controlling interest as the proportion of net assets of the subsidiary. In the consolidated statement of financial position of at 31 December 20X5 what amount should appear for the non-controlling interest? A $105,000 B $90,000 C $82,500 D $60,000 Answer NCI at acq= 30% * 275,000 = 82,500 NCI= 82,500 Retained earnings= 200,000-125,000= 75,000*30%= 22,500 Less Impairment= 50,000*30%= (15,000) TOTAL= 82,500+ 22,500 – (15,000) = 90,000

PP2-D2Tutor4y ago#1

Hi, I think the answer given is wrong as they are allocating the goodwill impairment to the NCI when they shouldn't be. When we're using the proportionate share of net assets method then the goodwill impairment goes through group retained earnings in full. I believe the answer should be A and $105,000. This is simply the net assets at the reporting date of $350,000 ($150,000 + $200,000) multiplied by the NCI share at 30%. The alternative is to calculate the NCI at acquisition, which they have done, to give $82,500. to this we can then add on the NCI share of the post acquisition movement in net assets/retained earnings. Thanks

ASalawi sayed4y ago#2

Hello Sir, You said in the first way we can take the net assets of the reporting date and x by 30%,but the profit is including the profit at acquisition is this ok, senconly for the alternative method we can take the NCI value at acquisition and add the movements in netassets /retained earnings for this method I usually think to add the post aquisition profit ,so what do you mean by netassets movements. Thanks,

PP2-D2Tutor4y ago#3

Hi, Yes, it is OK to include the profit at acquisition because this is part of the net assets of the subsidiary at that date. And the net assets movement is usually the same as the movement in post-acquisition profits at this level. We just need to be careful in case the change in net assets is not entirely due to a change in profits but also partly due to the creation of a revaluation reserve, whose movement you would also need to consider. Thanks

ASalawi sayed4y ago#4

Thanks Sir.