goodwill: equity method vs. consolidation

CFA Level II
#1

Can someone correct my understanding:

I buy x% of AF.

Under equity method i compare purchase price to the book value of AF. Any excess is distributed (how?) to identifiable assets and expensed or amortized and any remaining goes to goodwill.

under consolidation I compare purchase price to fair value of AF and any excess is goodwill? (not BV correct)

thanks

#2

In equity method too goodwill is price paid above fair value… Another way of saying that is excess of purchase price paid over BV is allocated to fair value difference of identifiable net assets (which will result in excess depreciation or amortization in future) and goodwill

#3

Btw smagician will not let that happen!

#4

So i guess how would you know the order of which line item or which P&L account to allocate the difference between BV and FV for equity method?

#5

It will always be a Balance sheet item where there will be a difference b/w fair value and book value. The question will mention for e.g there is one fair value adjustment which is that the plant has a fair value in of $2000 in excess of book value. you will allocate excess paid by the acquirer that to plant and remaining excess to goodwill… and then over the life you will have to charge excess depreciation (i.e. depreciation on $2000 not being charged in stand alone book of the associate)

Remember however for associates goodwill and excess fair value adjustment is merged(hidden) in one liner shown in consolidated balance sheet i.e. investment in associate.