Hey everyone,
This is for practice problem #29 on reading 22 in CFAI material. They say that equity is the same under consolidation with either full or partial goodwill. In the example in the reading it shows goodwill and therefore equity being higher under full goodwill. Anyone know why it’s the same in this question?
I don’t have the question in front of me but excess in the full goodwill is adjusted in the minority account, so if you are not considering minority share as part of your equity, equity may be higher but actually it’s not.
Hey studyn, thanks for your question. This vignette is quite tricky.
it doesn’t create Goowill at all, so full or partial are the same in equity, minority interest is just 320. The excess purchase price is allocated to new asset, it’s fair value (also recognised value) is 60.
Thanks for the response apr9th. After re-reading it I see it tells us the excess purchase price is attributable to the licenses, so we don’t have to bother calculating goodwill, it’s basically saying the entire excess is attributable to the licenses no matter the amount.
If there is excess allocation to FV of an asset, you would have to amortize the excess amount correct?
Purchase = 1,000
Assets = 900 however, FV of PPE is 100 more than Book therefore Assets = 1,000 and no goodwill is recognized.
If I am still sane… you would amortize the 100 excess correct?
Yes - although technically its just depreciation… You can’t just keep the extra $100 on your books indefinitely. .
@Matori I assume you have bought 100% stake in the subsidiary that’s why you are not differntiating between the full goodwill vs partial goodwill. Remember fair market value adjustment is different for depreciation.
*Remember fair market value adjustment is different for partial and full goodwill.