Goodwill methods under equity/acquisition and business combinations methods

CFA Level II
#1

I have here down what I wrote as the ways to calculate goodwill under acquisition method/equity and business combinations. Can someone please correct me if I’m wrong. I don’t think I’m on the right path with some of these equations.

Acquisition method

  1. Full good will under us gaap: Purchase price of the firm -% owned of net identifiable assets of the firm= goodwill

  2. Under ifrs = % owned * full goodwill method / % owned *proportion of net identifiable assets of the company.

Equity method

  1. If purchase price - book value is > than fair value - book value we have goodwill.

under business combinations

  1. impairment is a 2 step process under us gaap. if fair value is lesser than carrying value there is impairment. impairment is measured as carrying value - fair value which is (purchase price of the firm at inception- value of net identifiable assets of the company at inception) - (market value of the firm now- value of net identifiable assets of the company now) can someone pls comment on whether my understanding is correct. I have a feeling I’m wrong somewhere. thank you
#2

Acquisition Method/Business Combination

Full goodwill (acceptable under IFRS & required under US GAAP) - is computed as the FV of the subsidiary less the FV of the net identifiable assets.

Partial goodwill (acceptable under IFRS) - is computed as the Purchase price less the Proportionate share of the Parent on the Subsidiary’s net identifiable assets.

Equity Method

Does NOT recognize goodwill.

#3

I belevie goodwill still recognized in equity method.The impairment check is different though.

#4

yes goodwill in recognized under the equity method. from schweser that appears to be the formula but im not seeing how different it is to the acquisition one.

#5

Under the equity method goodwill is recognized, but it isn’t recorded separately.

#6

Can you elaborate please

#7

Under the equity method you have one entry on the balance sheet: Investment in XYZ Company. That’s it. No separate account for goodwill.

However, if you paid $10 million for $9 million of net assets (market value), then you have:

Investment in XYZ Company $10,000,000

$1 million of which is goodwill, which you test for impairment every year.