If you think about it, full goodwill have a higher depreciation which means lower net income which means lower retained earning which means lower stockholder’s equity which means higher debt to equity ratio. I am aware that the minority interest is higher under full good will but how do you know which one will offset the other one? Am I making sense? Please let me know. Thanks in advance.
why is it posted twice??? Never know…
because assets are bigger?
You are saying exactly what I said. With full good will Assets are bigger and that’s how you balance the balance sheet increasing equity with minority interest. But my question here is what is the implication of the depreciation expense which affect NI and RE which then affects Equity. Am I making sense? hmm… I see what you are saying but I need more precise answer… Am I complicating things? lol
jal1003, Excess Depreciation will be SAME in either of the 2 methods (Full or Partial Goodwill). For example, parent bought 60% of the subsidiary at 100m. And Book Value and Fair Value of sub’s net asset is 80m and 120m respectively. Now, excess depreciation on Parent’s books because of this purchase would be on (120 - 80) * 60% = 24m. And this Depreciation on 24m of assets would be same, whether we use Full Goodwill or Partial Goodwill. And of course, Equity under Full Goodwill method will be higher because of higher NCI. So, Full Goodwill method will result in Lower D/E.
I don’t know where I picked up the fact that depreciation is different. duh… Goodwill is impaired… I don’t know what I was thinking…lol Anyways. Thanks for the explanation.