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In ACCA Technical Article: Business Combinations – IFRS 3 (Revised), Example 5: Disposal of part of holding to NCI (Facts of Qn: Parent’s initial stake: 70%, sold 10% to NCI, Initial total net assets = 480m, Current total net assets= 535m, Initial FV of NCI = 210m, full goodwill method is used for all acquisitions)
For the change in NCI, the article takes (Current net assets + goodwill) *0.1 = 62.5m
In this case, the parent is giving 10% of its 70% share to NCI, so wondering why the working isn’t carrying amount of parent’s net assets*(10/70) = (Current net assets + goodwill – current NCI) *(10/70) = (535m+90m- (210m+0.3*(535m-480m))) * (10/70) = 57.1m
Please explain why the answer isn’t 57.1m instead(Also, both these methods differ from a similar step disposal Open Tuition question Chapt 5, Example 5, in which the equivalent method is (10/30) *Current NCI= (10/30) * (210m+0.3*(535m-480m) = 75.5m)
Many Thanks!
This is an issue where there is little consistency in theory or in practice. Mercifully, remember that in SBR, your numbers do not need to agree – what they are assessing is whether you can explain things to ‘ordinary directors’.
They will probably give you the NCI number that needs to be compared to the proceeds, so I wouldn’t spend on time on this.
For my rule of thumb – if you go from 70% to 60%, I would take:
– 10/70 x net assets if using proportionate goodwill
– 10/70 (net assets + goodwill ) if using full goodwill.Best I can do.
🙂
Hi Stephen,
Thanks a lot for your explanation.
Just wondering for your rule of thumb:
For full goodwill: why do you take 10/70 * (net assets + goodwill) instead of 10/70 * (net assets + goodwill – fv of NCI), as using the goodwill formula, cost of consideration (parent’s share which is 70%) = net assets + goodwill – fv of NCI, so thinking that the 70% should not include the fv of NCI
For proportionate goodwill, Im also wondering why do you take 10/70 * net assets as I think the change in NCI = 10/70 * (goodwill + 70% net assets) as cost of consideration (parent’s share which is 70%) = goodwill + net assets – 30%net assets(NCI)
Thank you!
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