# Goodwill under Equity method

As I was going through the equity method and consolidation method, I noticed the concept of full GW and partial GW were introduced in the consolidation method, whereas in the equity method, a ‘different GW’ was introduced as: Purchase price - % of parent owned Book value of net assets - % of parent owned (Sub’s PPE fair value - PPE book value).

This GW is different from the full and the partial GW, at least from the looks of it. I am just a little confused as to why we have a diff GW calculation for equity method? And why PPE was also taken account when it wasn’t for full and partial GW?

Thanks!

In the above i think you are referring to the excess over book value. If some of the investment (net identifiable assets of the associate) has a different market value of assets to book value (most likely due to Land and PPE), then you have to account for it. E.g.

Purchase price fo associate (50% of firm) = \$500

Book value of associate = \$400

You record goodwill of \$100.

But then if PPE and Land for example have a combined market value of \$60 but a book value of \$50, you work out how much of that contributed to the good will of \$100.

Which is 50% x (\$60 - \$50) = 50% x \$10 = \$5

Good will consits of \$5 attributable to the excess over book value of PPE and Land, and \$95 residual good will.

Thanks! and right, but here when you first calculated the ‘un-adjusted’ GW, you use PP - Book Value of associate’s net assets, as opposed to under consolidation method, both Full GW and Partial GW use fair value. So you basically prove my point that GW under Equity is different from full GW and partial GW? and we also don’t need to adjust for PPE under full and partial GW?

In a business combination, the standard allows to calculate goodwill either using fair value method or proportion of net assets method.