Intercorporate Investments - question 29 CFAI

CFA Level II
#1

This problem asks for a comparison for ROE between the equity method and consolidation using full goodwill or partial goodwill. The purchase price exceeds the the fair value of net assets but this is due to unexpired licenses. The answer states that the equity method reports a higher ROE which I get, but it says that the ROE reported under either consolidation method is the same. If this is the case, partial and full goodwill methods are the same and are based on the total fair value?

Think I answered my own question. No goodwill is actually reported in this case and therefore minority interest will be the same resulting in the same equity value. Correct me if I’m wrong and missed an exception.

#2

Net income is the same under full and partial consolidation, and equity is the same under full and partial consolidation.

#3

True (I am assuming you mean consolidation using partial goodwill).

Equity will be different - due to minority interest under full goodwill (consolidation).

#4

I believe for the purpose of calculating ROE you do not include the minority interest in equity.

I could be mistaken.

#5

I think you are right. I think CFAI assumes the NI in ROE excludes the part that is attributable to minority interests.