How does the value of minority interest change under the full goodwill and partial goodwill methods??
In testing for impairment of goodwill, what is the difference between fair value of a unit and the fair value of the net assets?? I know fair value of net assets is the fair value of assets minus fair value of liabilities but what exactly is fair value of the unit??
Maybe no one’s replied because it’s a pretty straight forward question from the text book. I can paraphrase it but better if you look at page 85/86 of Schweser for complete detail.
Minority interest (and equity) is bigger under full good-will
Under FG: MI = Fair value of asset x % uncontrolled (or 1-Controlled%)
Under PG: MI = Fair value of net assets) * %Uncontrolled
Under FG: Goodwill = FV - FVNA
Under PG: Goodwill = Purchase price - Fair value of net assets
Fair value is the value of all assets, including the intangible. Fair value of net identfiable assets excludes unidentified economic assets (or benefit) like synergies or customer awareness.
unit is something about “reporting unit”. I think when you write down goodwill you can’t pick and choose, so you do it by reporting unit. as I recall the IFRS and GAAP definitions of reporting unit are slightly different, but its not something i’ve noted down.
Thanks a lot MrSmart!! I have understood the first part… I still am not clear on the fair value concept… On page 87 of schweser kaplan of FRA and corporate finance, there is a sum on parent company acquiring sub company for $1 mn… in the context of this sum, what exactly is fair value (only fair value, not fair value of net assets)??
Fair value of the reporting unit is the amount in dollars of what it is worth as a whole inseperable unit. It is a subjective measure by either investment bankers, or the target company setting a selling price for itself.
The fair value of net identifiable assets is straightforward, it nets out the fair value of all the assets with all the liabilities
It is impaired if the carrying value of the whole unit (including the good-will which is NOT amortized), is higher than the price it should get for you on the open market (again, including good-will).
For partial goodwill, I think I’m confused–isn’t GW under partial method: GW = Price paid - (FVNA * %Owned) ? Could somebody straighten me out? If price paid is proportional to the fair value acquired, could you just look at the partial goodwill as: Goodwill via Full * % BV owned, which would be equivalent to viewing it as the standard full method’s goodwill, scaled down to reflect the proportion you own? And I guess why we don’t look at like this is that this would become an issue when a parent pays more than the FV of all assets, and the FV of all assets is more than the FV of net identifiable assets, because book values for subsidiary goodwill must be transferred over when allocating?
