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Negative Goodwill

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Negative Goodwill

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by P2-D2.
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  • Author
    Posts
  • November 27, 2018 at 9:11 am #486119
    juve
    Participant
    • Topics: 59
    • Replies: 77
    • ☆☆

    Dear Tutor,

    Thank you for your lectures on consolidations. I understood that when we have the negative goodwill (whether it is the full goodwill method or partial goodwill method) we have to add it to the profit of the parent.
    I can accept the logic when it is the partial goodwill method. But in the case of full goodwill method, it seems more logical to me that we add the negative goodwill to both parent and NCI based on their share percentage. Why we add all the negative goodwill to the parent?

    Thank you

    December 3, 2018 at 8:06 pm #487042
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    This is a tricky one but the key to helping you understand it is that the impairment is a post acquisition event and the negative goodwill happens on acquisition, so therefore the treatment you expect (i.e. allocating the negative goodwill to both retained earnings and NCI) is not the same as allocating the impairment.

    When we have negative goodwill, the negative goodwill of the NCI is effectively already included in the NCI at acquisition and as this figure is already included within the NCI calculation then we do not have to allocate any of the negative goodwill calculated to the NCI as all of the negative goodwill calculated belongs to the parent. The NCI already has their share in the NCI calculation.

    Don’t worry about it too much as it is prize winner territory, so just focus on the other aspects of consolidation.

    Thanks

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