Can someone please distinguish between Full and Partial Goodwill. The definition in CFAI Book 2, pg.39 is not helping me. More specifically how does this relate to the debt/equity ratio. Thanks!
Company A pays 100K for say 40% of Company B. Company B has Fair Value of Net Assets = 200K, Book Value of Net Assets = 160K. Partial Goodwill method: Goodwill = 100 - 0.4*200 = 20K Full Goodwill method: 100K is for 40% of company. So for full company - A would have paid 100/0.4 = 250K So Full goodwill = 250-200 = 50K This part below I have to reread : [I hope what I write here is correct] With Full Goodwill - Assets would be more - so Equity would be more - assuming same liabs. So D/E would be lower with Full Goodwill method.
As always CP, thanks! I was only thinking about 100% acquisition and not buying a part of a company, very good example!
full goodwill = covers net assets partial goodwill = covers net assets, intangibles, contingent liabilities … hopefully this is right
cpk123 Wrote: ------------------------------------------------------- > With Full Goodwill - Assets would be more - so > Equity would be more - assuming same liabs. So D/E > would be lower with Full Goodwill method. Yes you are correct. >Posted by: Northeastern Student >Date: March 30, 2010 07:13AM >full goodwill = covers net assets >partial goodwill = covers net assets, intangibles, contingent liabilities … >hopefully this is right Yes you are correct too: Parital Goodwill = Fair value of acquisition (Purchase price) - Acquirer’s share of fair value of all identifiable tanglble and intangible assets, liabilities and contigent liabilities Full Goodwill = Fair value of acquisition - Fair value of identifiable net assets.
Just to add to already excellent explanations: It is NCI (reported as part of equity) that adjusts for higher Goodwill (Asset) reported under Full Goodwill method. So, under Full Goodwill method, we will have higher NCI, that is higher Equity (and lower D/E). And under Partial Goodwill method, we will have lower NCI, that is lower Equity (and higher D/E).
great explanation under equity method and acquisition method, we know the equity and NI are the same for both. My confuse is that how is [equity/ NI / assets] under partial vs full goodwill, compared to the equity method? i think the NI is still the same.