Goodwill and Minority Interest: GAAP vs. IFRS and Equity vs. Acquisition

CFA Level II FRA
#1

So let me get this straight:

GAAP: Use full goodwill

IFRS: Use partial goodwill (but you can use full also)

Then why in one of the Schweser Mock exams does it use partial goodwill for an investment in an associate (equity method problem): Accounted for with GAAP, 185 million cash purchase price for 20% of the company with net identifiable assets of 738, partial goodwill = 185 - (0.2x738) = 37.4

Shouldn’t the goodwill be full goodwill since we are using GAAP?

How do assets remain the same for the acquiring company when there is goodwill involved?

If it was a stock purchase, would that affect my goodwill or my assets compared to a cash purchase?

Also if the target company has goodwill on its balance sheet, do you account for that when you are calculating goodwill of the purchase?

Do I use partial method to account for minority interest of target when its an equity investment and full method for an acquisition?

Any insight would be very much appreciated…

#2

Because you are not purchasing a majority share, but rather a 20% share, you use the equity method. Full versus partial goodwill is not applicable under the equity method as you are consolidating to one line-item.

#3

here is no “goodwill” in equity method, at least none that is broken out separately. It is inherent in the cost of the acquisition - the only thing recorded in your balance sheet is the cost of the acquisition

#4

Thank you JdGuy, as simple as your answer was, now I see that GAAP and IFRS account for acquisition goodwill a separate way, right?

Also, is goodwill a separate line item when you use the aquisition method?

#5

I believe so nospe690. To your question on goodwill as a seperate line item. And it would be tested for impairment annually.