Full goodwill v/s Partial goodwill

Hey guys,

I’m wrapping my head on the following can someone please shed some light here?

  1. Full goodwill = FV of the subsidiary - FV of identifiable net assets - is this formula correct under FULL GOODWILL METHOD ?

2, .Partial goodwill = FV of acquisition price - % of (identifiable assets + Liab + conting.) - is this formula correct under PARTIAL GOODWILL METHOD ?

now, if the above two are correct what if purchase price is not equal to Fair value of Acquisition price/ Subsidiary value in the above formula’s ?

You’re close on partial goodwill:

Partial goodwill = acquisition price – (ownership %)(FV of net assets)

You have identifiable assets + liabilities + contingencies for FV of net assets; it should be identifiable assets liabilities contingencies.

Full goodwill extrapolates this to the whole subsidiary:

Full goodwill = implied acquisition price – FV of net assets

Here, implied acquisition price is the price the parent would have paid for the entire subsidiary: (acquisition price) / (ownership %).

Full goodwill = partial goodwill / ownership %.

Here’s an example: you buy 40% of ABC company for $10 million; the FV of ABC’s net assets is $22 million.

Partial goodwill = $10 million – 40%($22 million) = $1.2 million.

If you paid $10 million for 40% of ABC, then you would have paid $25 million (= $10 million / 0.4) for all of ABC, so:

Full goodwill = $25 million – $22 million = $3 million.

Note that $3 million = $1.2 million / 40%.

Alright! can u plz confirm me is acquisition price = implied acquisition price = Fair Value = purchase price ?

Or i m on a wrong track ? why i am asking this is bcoz, Schweser uses terminology as “FV” which creates a lot of confusion in my head !

Schweser says : Full goodwill = FV of subsidiary - FV of net identifiable assets

and Partial goodwill = purchase price - FV of net identifiable assets

Acquisition price = purchase price: the price that you pay for 40% of ABC.

Implied acquisition price is the price you would have paid if you had bought 100% of ABC; it equals acquisition price / 40%.

Fair value is what ABC is really worth; it may be the same as the implied acquisition price, or higher, or lower.

OK. Can you also confirm what if the goodwill calculated as per above formula’s is higher than MV or FV at the same time ? Do you impair the Goodwill at the same time ? Bcoz, FV can be higher or lower than Acquisition price or Implied acquisition price…

Or there is no possibility of this Scenerio to occur ?

I don’t understand the question.

I’m just guessing it…say Full Goodwill after calculation is 100 and Partial goodwill is 60

Now, is there any possibilty that Fair Value of goodwill/Subsidiary value in the market at the same time can be lower than Full or Partial goodwill/sub value reported on statement ? the reason why i’m asking this bcoz, purchase price can be higher or lower or equal to FV

If yes, do we impair the goodwill at the same time ?

Goodwill is the difference between what you paid and FMVNA.

If you pay more than FMVNA, you record goodwill (either full or partial).

If you pay FMVNA, you do not record goodwill.

If you pay less than FMVNA, you do not record goodwill, but you have a gain to report on your income statement.

Later, if the value of the investment changes and you’ve recorded goodwill, the goodwill may be impaired.

Does this help?

If I understand your question properly then this would be the answer.

Goodwill is recognized only when you are paying more than the value fair value of the asset.

You can’t impair the goodwill if you are getting the asset below fair value just for the reason you are getting at lower price

Great! All clear now! Thanks

My pleasure.