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For cost, equity, and consolidating method when acquiring a % of the sub, how do you account for goodwill? I am confused because sometimes, its just purchase price – (FV of intangible X %). Other times, it is Purchase price / % – FV of intangibles. Can anyone explain this? Thanks!

[Anonymous]

I'm not sure I understand your equations but for cost method there is no goodwill recognized, for equity method you basically take recognize the % of goodwill that you purchases, and for consolidation method you recognize 100% of the fair value of all assets and liabilities so you take 100% of that goodwill no matter what… even if theres a fire

So for equity method if you acquire 20% of a company for $20,000 and the fair value of intangible assets was only $80,000, we would recognize $4,000 in goodwill.

This is because the fair value of the entire company is now $100,000 which means $20,000 is good will (100,000-80,000). So of that $20,000 in goodwill we take 20% or $4,000 in goodwill.

Under Consolidation method we would take the whole $20,000 in goodwill.

Hope that helps!

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aeroT, that explanation answered my question 110%…appreciate it! 🙂

[Author]

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