Goodwill by Tom Clendon
Goodwill by Tom Clendon
It is relevant to ACCA F7 and P2 international stream students.
Goodwill
Following the revisions to IFRS3 Business Combinations and IAS27 Consolidated and
Separate Financial Statements in January 2008 there is now two ways of measuring the goodwill and the non controlling interest (NCI) that arises on the acquisition of a subsidiary.
Traditional / Proportionate method
The traditional measurement of goodwill on the acquisition of a subsidiary is the excess of the fair value of the consideration given by the parent over the parent’s share of the fair value of the net assets acquired. This method can be referred to as the proportionate method. It determines only the goodwill that is attributable to the parent company. Accordingly the NCI share of the net assets of the subsidiary determines the NCI without any goodwill being attributable. New / Gross method
The new method of measuring goodwill on the acquisition of the subsidiary is to compare the fair value of the whole of the subsidiary (as represented by the fair value of the consideration given by the parent and the fair value of the non controlling interest) with all of the fair value of the net assets of the subsidiary acquired. This method can be referred to as the gross or full goodwill method. It determines the goodwill that relates to the whole of the subsidiary i.e. goodwill that is both attributable to the parent’s interest and the non controlling interest
(NCI). Accordingly the NCI can be determined as the FV of the NCI at acquisition plus the
NCI share of the post acquisition profits.
Consider
Saracens acquires an 80% interest in the equity shares of Borthwick for consideration of $500 when the fair value of the non controlling interest (NCI) is $100.The fair value of the net assets of Borthwick at acquisition is $400 and is now $550.
Required
1. Calculate the goodwill arising on the acquisition of Borthwick on a proportionate basis and the NCI at the
It is relevant to ACCA F7 and P2 international stream students.
Goodwill
Following the revisions to IFRS3 Business Combinations and IAS27 Consolidated and
Separate Financial Statements in January 2008 there is now two ways of measuring the goodwill and the non controlling interest (NCI) that arises on the acquisition of a subsidiary.
Traditional / Proportionate method
The traditional measurement of goodwill on the acquisition of a subsidiary is the excess of the fair value of the consideration given by the parent over the parent’s share of the fair value of the net assets acquired. This method can be referred to as the proportionate method. It determines only the goodwill that is attributable to the parent company. Accordingly the NCI share of the net assets of the subsidiary determines the NCI without any goodwill being attributable. New / Gross method
The new method of measuring goodwill on the acquisition of the subsidiary is to compare the fair value of the whole of the subsidiary (as represented by the fair value of the consideration given by the parent and the fair value of the non controlling interest) with all of the fair value of the net assets of the subsidiary acquired. This method can be referred to as the gross or full goodwill method. It determines the goodwill that relates to the whole of the subsidiary i.e. goodwill that is both attributable to the parent’s interest and the non controlling interest
(NCI). Accordingly the NCI can be determined as the FV of the NCI at acquisition plus the
NCI share of the post acquisition profits.
Consider
Saracens acquires an 80% interest in the equity shares of Borthwick for consideration of $500 when the fair value of the non controlling interest (NCI) is $100.The fair value of the net assets of Borthwick at acquisition is $400 and is now $550.
Required
1. Calculate the goodwill arising on the acquisition of Borthwick on a proportionate basis and the NCI at the