But also, remember the effects of which method is selected. Full will always recognize an amount equal to or greater than partial. For that reason, assets are higher (more GW) and equity is higher. Therefore, leverage is lower under full. Also, due to higher equity, ROE is lower under full.
Summarized, full results in more GW, higher Assets and Equity, lower leverage, and lower ROE.
Suppose that the fair market value of a company’s assets is $500 million, and you pay $390 million for 75% of the company. That corresponds to a price of $520 million for 100% of the company ($390 million × 100% ÷ 75% = $520 million), so the total goodwill is $20 million (= $520 million – $500 million).
Under the full goodwill method you record the entire $20 million in goodwill on your balance sheet. Under the partial goodwill method you record 75% × $20 million = $15 million in goodwill on your books. The value of the goodwill is the same in both cases – $20 million – the only difference is whether you record 100% of it or 75% of it.
the other thing I dont get is when the question includes something like a equipment whose fair value and book value are different and then its got depreiciation, what are they trying to do?
If the book value of the depreciable assets were, say, $800 million, and the fair market value of the depreciable assets were, say, $840 million, then there would be an extra $40 million to depreciate. If you bought 75% of the company, then you would depreciate 75% × $40 million = $30 million. If the remaining useful life of those assets were 10 years and you use straight-line depreciation, you would have $30 million ÷ 10 years = $3 million/yr in excess depreciation.
The $40 million is the difference between the fair market value of the assets and the book value of the assets. The amount of goodwill is the difference between the purchase price and the fair market value of the net assets, so _ the $40 million is already subtracted out to arrive at goodwill _.