In all the examples I’m looking at for goodwill method I am seeing that Full Goodwill is:
Fair value of asset
less: Fair value of asset’s identifiable net assets
Goodwill
Which makes complete sense to me if you are acquiring 100%
But apparently the calculation is the same if you are acquiring less than 100%? I don’t get that. If I’m only acquiring 60% shouldn’t my nominal goodwill be lower than if I’m acquiring 100%?
At least in partial goodwill it accounts for the share acquired. But if you are reporting in GAAP you have no choice but use Full Goodwill. Does anyone else feel wierd about this?
Goodwill is the difference between the price you pay versus the fair-value of the identifiable assets.
Goodwill is an arbitrary asset plug since it’s usually removed in calculating financial ratios and is offset (if less than 100% aquired) in equity. I like to think of it as an accounting measure to highlight how poorly the company manages their aquisition budget while “going for growth”.
yeah but my question may be better phrased like this:
Let’s say company A and company B both report in GAAP. Let’s say that both are considering acquiring company C so they create pro formas of their balance sheets post acquisition.
Company A wants to acquire 40%, Company B wants to acquire 60%.
Under full goodwill since it doesn’t account for how much you acquire, are they both reporting the same goodwill in their balance sheets? Does that make sense? It seems wrong and I just want to confirm with other people that I am reading it right.