Hi, Just wondering, is goodwill added directly to equity? If it is, does this mean the Debt to Equity Ratio under acquisition method (assuming goodwill present) is lower than the equity method D/E ratio? Or will I need to calculate it to see if goodwill is big enough to inflate the Equity denominator under acquisition method? Kindly clarify and thanks!!!
No goodwill under equity METHOD. Its a non current asset anyway and will be in B/S for prop consol and acquisition D/E under equity or acquisition would depend…higher debt under acquistion and also higher equity due to the MI portion in there…would have to sift the numbers.
Hmm … If under equity (or acquisition method) you don’t add goodwill to shareholder’s equity, then your B/S isn’t balanced Assume you use 1000 cash to buy 50% of the company. Assume a resulting goodwill of 500 Say under equity method, you’ll have: -1000 cash +1000 investment in asset +500 goodwill Where would be the offsetting entry to that +500 goodwill? What about for the acquisition method?
There is no Goodwill concept for Equity method. For Acquisition the goodwill would show up as an adjustment on the B/S
For equity you have to remember to take your portion of the fair value of the PPAE over purchase price, and then depreciate it based on the schedule given, which will reduce NI
Wouldn’t it be more correct to say goodwill is implicitly included in the investment account on the asset side? Saying there’s no GW whatsoever is dangerous.
joseph213 Wrote: ------------------------------------------------------- > Hmm … If under equity (or acquisition method) you > don’t add goodwill to shareholder’s equity, then > your B/S isn’t balanced You buy a company: you issue shares (or debt, whatever) you get cash in exchange. So you have an entry in SHEQ/LIAB and one in Assets. You trade cash for a company, overpay (from an accounting point of view) and split you’re new asset up between an overpaid account (goodwill) and lets say, fixed assets. No need for any other entries…
my fault, i’m wrong, in certain instances there is GW in equity method, as justinkc says.