Guys, I keep confusing this stuff so just gonna write it on here and you guys can tell me if I finally got it. Purchase price= paid 50 for 40% (fair value of subsidiary is 100) Partial goodwill= 50-40=10 Purchase price=50 for 40 % (fair value of subsidiary is 100) Therefore, implied FV of Subsidiary = 50/0.4=125 Full goodwill=125-100=25 Is this correct? I just feel that 25 is so much bigger than 10… Thanks!!
you need to know the fair value of the net assets to calculate full goodwill. Fair value of sub less fair value of net assets.
And if you are including FV of fixed assets> BV of fixed, then you need to recognize the portion of depr on your income from the sub ownership.
The way I remember is FF: Full goodwill = Fair value of subsidiary – fair value of net assets. PP: Partial goodwill = Purchase price - fair value of net assets. Fair value = Purchase price/ percentage ownership.
thommo77 Wrote: ------------------------------------------------------- > you need to know the fair value of the net assets > to calculate full goodwill. Fair value of sub > less fair value of net assets. i guess it is under equity method.?
fv of net assets = fv of sub’s equity?
YAhmed Wrote: ------------------------------------------------------- > fv of net assets = fv of sub’s equity? Yes.
that method ur using is correct, from there both assets and equity will be higher under full good will rather than partial good will
I am not so sure you have a complete story. For starters, i think you only get to use identifiable net assets of the subsidiary in figuring out goodwill. Which means, you gotta exclude subsidiary’s goodwill from the calculation of your post acquisition goodwill. Step 1: figure out subsidiary’s net asset fair value. this probably involves marking up some fixed assets and excluding subsidiary’s existing goodwill, if any. Step 2: Full Goodwill: Purchase price / stake bought (=implied full fair value of subsidiary) - subsidiary’s net assets from step 1 Step 3: Partial Goodwill: Purchase price - %stake x step 1 My question is when would your step 3 ever NOT be precisely equal to % bought x price paid?! Looks you should always come up with an answer where full goodwill x stake = partial goodwill. Does anyone disagree?
No, that is the correct method.
10 is 40% of 25