If I pay $450 for 75% of Company…what would my acquisition goodwill be under the full goodwill method? Assets (Current and PP&E) = 940 Liabilites (400) Fair Value of Net Assets = $540 I understand how to calculate the partial goodwill. Excess purchase price - % owned of net identifiable assets 450-(540*.75)=$30 I am showing an answer of $40 for the full goodwill method…can’t get there…
The 30$ is assuming you have 75% share of the company. Think of full goodwill as assuming on your balance sheet 100% of the goodwill associated with the transaction even though you bought only 75% of the company, so 30 / .75 = 40$
Full goodwill would be 450/.75= 600 fv of company 600-540 = 60 full goodwill.
Schweser has $40…
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Where does the 600 come from?
Assuming you paid $450 for 75% of the company, that places a FV of $600 for 100% of the company. Since FV of net assets = 540, Full Goodwill would have you carry the difference, $60, as goodwill on your balance sheet and report a minority interest of $150 (25% of the $600 FV of company) on your Balance Sheet. I’m assuming Schweser is wrong here.
Furthermore, minority interest would be $135 (FV Net Asset x Amt not owned $540x25%) under partial goodwill.
You/schweser is right…I just looked at the question again. Thanks!
I’m pretty sure partial goodwill is $45 … Partial Goodwill: Partial Goodwill = Purchase Price - % share of FV Assets 450 - (0.75)(540) = $45 Minority Interest = % not owned * FV Assets 0.25 * 540 = $135 Full Goodwill: FV of Company (Purchase Price / % stake acquired) - FV Assets (450/0.75) - 540 600 - 540 = 60 Minority Interest = % not owned * FV of Company 0.25 * 600 = $150 The only reason for these numbers to change is if the question specifies that certain assets in the subsidiary have a fair value that is greater than the carrying value that is NOT reflected in the $540. Then, before allocating goodwill, you take your excess purchase price and allocate it to the (fair value - carrying value) of the asset not included in the $540. If anything is leftover, then that is your goodwill. Oh yeah — you have to remember to depreciate any amount that isn’t allocated to goodwill. Goodwill is then tested for impairment (GAAP has a two step process, IFRS has a one step process) This is ridiculous.