ACCA SBR ^INT Syllabus D. Financial Statements of Groups entities - NCI in the Goodwill calculation - Notes ^{7 / 37}

So far we have presumed that the company has been 100% purchased when calculating goodwill.

Our calculation has been this:

Non-controlling Interests

Let’s now take into account what happens when we do not buy all of S. (eg. 80%)
 
This means we now have some non-controlling interests (NCI) at 20%
 
The formula changes to this:

This NCI can be calculated in 2 ways:

1) Proportion of FV of S’s Net Assets

2) FV of NCI itself

Proportion of FV of S’s Net Assets method

This is very straight forward. All we do is give the NCI their share of FV of S’s Net Assets..Consider this:
 
P buys 80% S for 1,000. The FV of S’s Net assets were 1,100.
 
How much is goodwill?

The NCI is calculated as 20% of FV of S’s NA of 1,100 = 220

“Fair Value Method” of Calculating NCI in Goodwill

• So in the previous example NCI was just given their share of S’s Net assets. 

  They were not given any of their reputation etc. 

  In other words, NCI were not given any goodwill.

• I repeat, under the proportionate method, NCI is NOT given any goodwill.
   
  Under the FV method, they are given some goodwill.

• This is because NCI is not just given their share of S’s NA but actually the FV of their 20% as a whole (ie NA + Goodwill).

  This FV figure is either given in the exam or can be calculated by looking at the share price (see quiz 2).

P buys 80% S for 1,000. The FV of S’s Net assets were 1,100.  The FV of NCI at this date was 250.

How much is goodwill?

Notice how goodwill is now 30 more than in the proportionate example. This is the goodwill attributable to NCI.

NCI goodwill = FV of NCI - their share of FV of S’s NA

Remember

Under the proportionate method NCI does not get any of S’s Goodwill (only their share of S’s NA).
 
Under the FV method, NCI gets given their share of S’s NA AND their share of S’s goodwill