[Anonymous]

I am very confused between the Partial and Full goodwill method. Can someone please help me in understanding the logic behind these two methods so that I don’t have to learn the formula by rote.

These are the few things that I don’t understand-

1. Why do we take fair value of the sub while calculating Non Controlling Interest (NCI) under full goodwill?

2. Why do we take fair value of net assets of the sub while calculating Non Controlling Interest (NCI) under partial goodwill?

3. And whats the difference between fair value of sub and fair value of net assets of sub?

[Anonymous]

Please someone help me in resolving these doubts.. I am really very confused..

[Mr. Dim]

If I answer your questions out of order, I think it will make more sense. This is how I understand the material:

3. FV of Sub Net Assets = Sub's Assets (adjusted to FMV) – Sub's Liabilities (adjusted to FMV). Note: the Sub's Assets may include the FMV of intangible assets (such as customer lists) that were not previously recognized on the Sub's books prior to the acquisition.

Here's the difference: FV of Sub = FV of Sub Net Assets + Implied Goodwill.

1. Under the Full Goodwill Method, goodwill is allocated to both the parent and NCI. We need to use FV of Sub because it includes the value of implied goodwill. So, Immediately after acquisition, NCI = FV of Sub x NCI ownership %. Note: if there is a difference between BV and FV of Sub Net Assets, the adjustment is also allocated between parent and NCI.

2. Under the Partial Goodwill Method, only the parent's share of goodwill is recognized. However, the NCI is still adjusted for the revaluation of Sub Net Assets. Immediately after the acquisition, NCI would be calculated as: NCI = FV of Sub Net Assets x NCI ownership %.

I hope that helps! If anyone can explain it better, feel free to jump in.

FAR - 95
AUD - 98
REG - 92
BEC - 10/4/14

[Mr. Dim]

Sorry, I may have missed the “call” of your question: The logic is that under full goodwill, total goodwill is recognized on the consolidated BS. Under partial goodwill, only the portion attributable to the parent is recognized on the consolidated BS. So, under partial goodwill, the FV of the Sub's net assets need to be considered in calculating NCI – not the total implied FV of the Sub (because it might include goodwill.)

FAR - 95
AUD - 98
REG - 92
BEC - 10/4/14

[Anonymous]

Thanks a lot Mr. Dim for explaining it. I have the two concepts clear in my mind now and hopefully i can solve the questions by applying the concept and not just mugging up the formula.

[Author]

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