Under GAAP, do you ALWAYS report FULL goodwill under the equity method (investment in associates)?作者: chandsingh 时间: 2013-4-22 07:46
US gaap.
Equity method: goodwill = purchase price - fair value - premium allocated to identifable assets
Consolidation: goodwill = purchase price - fair value
IFRS:
Consolidation: a) full goodwill: same as US gaap consolidaiton
b) partial goodwill: purchase price (only for % acquired) - fair value (% of investment)作者: OmarAdnan 时间: 2013-4-22 07:47
How would that be different under acquisition method?作者: SFoyil 时间: 2013-4-22 07:48
Full Goodwill: 100% Fair Value - 100% of Fair Value of Identifiable Net Assets
Partial Goodwill: Purchase Price (Proportionate Share of Fair Value) - Proportionate Share of Identifiable Net Assets at Fair Value
In equity method, the goodwill is included in the one line investment account. Its the portion of the purchase price in excess of book value and fair value of identifiable assets and liabilities.
In acquisition menthod, the goodwill is also the excess over fair value of identifiable assets and liabilities but reported as a separate line item due to the full line-by-line consolidation of each account. If less than 100% is held, the balance is minority interest in equity section.作者: svgleeson 时间: 2013-4-22 07:48
It’s purchase price - book value not fair value.
Q44 2011 AM Mock has a problem with Goodwill for the an Investment in Associates. It takes the Excess paid over Book Value less the amount attributable to tangible assets (which is the the % owned * (fair value - BV of tangible assets). That gets your your goodwill. When calculating the value of your investment going forward, you then amortize that amount attributable to tangible assets.
pepp wrote:
US gaap.
Equity method: goodwill = purchase price - fair value - premium allocated to identifable assets
Consolidation: goodwill = purchase price - fair value
IFRS:
Consolidation: a) full goodwill: same as US gaap consolidaiton
b) partial goodwill: purchase price (only for % acquired) - fair value (% of investment)作者: Nishant1 时间: 2013-4-22 07:49
EQUITY METHOD:
Full Goodwill – Fair Value - BOOK Value of Net Identifiable assets (same under IFRS and US GAAP)
Equity reminds me of Book Value
ACQUISITION METHOD:
Full Goodwill – Fair value - Fair Value of Net Identifiable assets (same under IFRS and US GAAP)
Partial Goodwill – Purchase Price - Parents Proportionate share of Net Identifiable Assets (only under IFRS)
So its FF under Full goodwill and PPPP under Partial goodwill作者: jim8z3 时间: 2013-4-22 07:49
Nice one Spyali!作者: Spongebob 时间: 2013-4-22 07:51
nospe690 wrote:
It’s not book value, it’s fair value of net identifiable for the equity method
I agree.作者: simeezee 时间: 2013-4-22 07:52
When you purchase a stake in a company, for say, $100, the fair value of net identifiable assets is 90 and the book value is 50 :
Goodwill is 10 under the equity method, which is technically partial goodwill since you are only reporting your share of the assets. Partial vs full goodwill refers to consolidation.
The difference between 90 and 50 (fair minus book) is allocated to the identifiable assets - you are basically writing up the assets from their old book values - remember assets go on the balance sheet at historical cost and the fair value at the time of acquisition is the ACQUIRER’s historical cost.作者: Walex 时间: 2013-4-22 07:53
nvestn wrote:
Anybody disagree with me? I am confident in my answer but would like to see if someone thinks I’m wrong…
Havent read everything you said. But if I understand you correctly, you were making the point that the excess of the purchase price over book value has two components 1) An allocation to the Fair Value of Net Identifiable Assets and 2) Goodwill (remainder that can’t be allocated) - then I 100% agree with you. Thats whats done in the text book.
Just to be sure. Is it correct to say Under the equity method, we would only allocate the excess to our proportionate share of the fair value differences (such as PPE), and we adjust the income by amortizing this excess. In the acquisition method we would have to use either full or partial goodwill method to determine the amount recognized as goodwill.作者: SWASH 时间: 2013-4-22 07:53
You have it bang on, Going_for_…
I think it’s easy to forget that for any year following the acquisition, you must amortize the excess purchase price over original book value (but not over fair value, that is goodwill). You will often see in those questions “at the date of acquisition, the remaining useful life is xx years”… that should be a hint that you need to amortize the excess for any full year.作者: hw0799 时间: 2013-4-22 07:54
SpyAli wrote:
EQUITY METHOD:
Full Goodwill – Fair Value - BOOK Value of Net Identifiable assets (same under IFRS and US GAAP)
Equity reminds me of Book Value
ACQUISITION METHOD:
Full Goodwill – Fair value - Fair Value of Net Identifiable assets (same under IFRS and US GAAP)
Partial Goodwill – Purchase Price - Parents Proportionate share of Net Identifiable Assets (only under IFRS)
So its FF under Full goodwill and PPPP under Partial goodwill
this is really helpful. thanks!作者: justin88 时间: 2013-4-22 07:55
nvestn wrote:
ff8789 wrote:
SpyAli wrote:
EQUITY METHOD:
Full Goodwill – Fair Value - BOOK Value of Net Identifiable assets (same under IFRS and US GAAP)
Equity reminds me of Book Value
ACQUISITION METHOD:
Full Goodwill – Fair value - Fair Value of Net Identifiable assets (same under IFRS and US GAAP)
Partial Goodwill – Purchase Price - Parents Proportionate share of Net Identifiable Assets (only under IFRS)
So its FF under Full goodwill and PPPP under Partial goodwill
[snip]
this is really helpful. thanks!
I honestly think that is wrong for the equity method part… IT IS NOT BOOK VALUE!!
Goodwill is goodwill, regardless of which way you report it. Goodwill is purchase price in excess of fair value of net identifiable assets. No questions.
Nvestn, you are correct. Goodwill under the equity method is: Purchase Price - the Purchaser’s share of Fair Value of Net Identifiable Assets. Another crucial step is that the difference between Fair Value and Book Value is assigned to items whose fair value exceeds book value. If that item is PP&E for example or any other asset subject to depreciation, you must depreciate that excess value over its useful life. This depreciation will reduce your reported income relating to that investment in subsequent years. Make sense?作者: genuinecfa 时间: 2013-4-22 07:55
Goodwill is the amount you report on your income statement that is above the assets fair value. Feel free to message me if you have any questions.作者: mar350 时间: 2013-4-22 07:56
mrblank wrote:
Goodwill is the amount you report on your income statement that is above the assets fair value. Feel free to message me if you have any questions.
Such a troll, right before exam day too.作者: DoubleDip 时间: 2013-4-22 07:56
Thanks for pointing it out guys! Here’s the revised version:
EQUITY METHOD:
Full Goodwill – Fair Value - Book Value of Net Identifiable assets (same under IFRS and US GAAP)
Equity reminds me of Book Value
And then we allocate the above calculated difference (i.e. the excess purchase price) to subsidiary’s those assets whose fair values exceed their book values. What we get after allocation is the goodwill which is essentially same as the difference between subsidiary’s fair value and parent’s proportionate share of net identifiable assets.
ACQUISITION METHOD:
Full Goodwill – Fair value - Fair Value of Net Identifiable assets (same under IFRS and US GAAP)
Partial Goodwill – Purchase Price - Parents Proportionate share of Net Identifiable Assets (only under IFRS)
So its FF under Full goodwill and PPPP under Partial goodwill作者: ramdabom 时间: 2013-4-22 07:57
mrblank wrote:
Goodwill is the amount you report on your income statement that is above the assets fair value. Feel free to message me if you have any questions.
Douche bag! lol… unless you’re being serious, if so then you’re wrong!作者: YouCanDoIt 时间: 2013-4-22 07:58
nvestn wrote:
ff8789 wrote:
SpyAli wrote:
EQUITY METHOD:
Full Goodwill – Fair Value - BOOK Value of Net Identifiable assets (same under IFRS and US GAAP)
Equity reminds me of Book Value
ACQUISITION METHOD:
Full Goodwill – Fair value - Fair Value of Net Identifiable assets (same under IFRS and US GAAP)
Partial Goodwill – Purchase Price - Parents Proportionate share of Net Identifiable Assets (only under IFRS)
So its FF under Full goodwill and PPPP under Partial goodwill
[snip]
this is really helpful. thanks!
I honestly think that is wrong for the equity method part… IT IS NOT BOOK VALUE!!
Goodwill is goodwill, regardless of which way you report it. Goodwill is purchase price in excess of fair value of net identifiable assets. No questions.
Equity method you take purchase price less acquiror’s share of BOOK VALUE of EQUITY less amount of excess (i.e. fair value - book) attributed to tangible assets. Purchase - Fair value is not entirely accurate. That just determines excess for the tangible assets. Plus if any intangibles you would need to account for that. The rest of purchase price allocated to book value of equity.
The 2011 Mock Q44 AM makes this crystal clear. If that is wrong and there is documented proof please share so we can all be confident in the answer since this topic will for sure be tested.作者: hassan 时间: 2013-4-22 07:59
Equity method - the way I remember this concept is to see how much of what I purchased justifies the amount I paid for it
Take your % BV
Purchase price - %BV = Amount I need to justify, anything that I can’t justify goes to goodwill.
How do I know what’s justified…
Take the sum of your % of FV - BV
Goodwill = Total amount to justify - Sum
Hope that’s correct, it would be too sad to relearn.作者: Bulla564 时间: 2013-4-22 07:59
Yes, correct.
Like andynyc said, take a look at the 2011 CFAI Mock Q44 (AM Session).作者: Kapie 时间: 2013-4-22 08:00
andynyc wrote:
nvestn wrote:
ff8789 wrote:
SpyAli wrote:
EQUITY METHOD:
Full Goodwill – Fair Value - BOOK Value of Net Identifiable assets (same under IFRS and US GAAP)
Equity reminds me of Book Value
ACQUISITION METHOD:
Full Goodwill – Fair value - Fair Value of Net Identifiable assets (same under IFRS and US GAAP)
Partial Goodwill – Purchase Price - Parents Proportionate share of Net Identifiable Assets (only under IFRS)
So its FF under Full goodwill and PPPP under Partial goodwill
this is really helpful. thanks!
[snip]
I honestly think that is wrong for the equity method part… IT IS NOT BOOK VALUE!!
Goodwill is goodwill, regardless of which way you report it. Goodwill is purchase price in excess of fair value of net identifiable assets. No questions.
Equity method you take purchase price less acquiror’s share of BOOK VALUE of EQUITY less amount of excess (i.e. fair value - book) attributed to tangible assets. Purchase - Fair value is not entirely accurate. That just determines excess for the tangible assets. Plus if any intangibles you would need to account for that. The rest of purchase price allocated to book value of equity.
The 2011 Mock Q44 AM makes this crystal clear. If that is wrong and there is documented proof please share so we can all be confident in the answer since this topic will for sure be tested.
Im not sure I understand what you’re saying. But I just had a look at Q44 and redid the question and got it right based on my method. You report the investment account at purchase price which includes $273,000 of Goodwill. That $273,000 comes from excess of purchase price over FV of NIA (Purchase price = $1,365,000 minus ($3,360,000 x 32.5% = $1,092,000) = $273,000. [Notice how I’ve determined goodwill, just like in the answer sheet, without using book value of anything…]
At that point, the only reason you care about previous book value is to depreciate identifiable assets that you have “written up”. In this case, you’ve written up the assets you bought by $234,000 (this is NOT goodwill) and must now deduct 1/10 of that amount as depreciation (less the portion attributable to land as land is not depreciable) from the 2008 NET INCOME allocation of Great Lakes.
In this case, you wrote up $234,000 of assets but only depreciate based on $222,300 (don’t depreciate gain on land). That amount divided by 10 gives you $22,230.
The answer is achieved by looking at purchase price $1,365,000 less depreciation $22,230 plus our share of NI $390,000 less our share of dividends paid $163,800 = $1,568,970.作者: willsucceed 时间: 2013-4-22 08:01
I think we are saying the same thing but coming to the answer in 2 different ways.作者: Bad5shah 时间: 2013-4-22 08:01
You are probably right, my friend.
As long as we get to the right answer and move on to Level III, that’s all I care about
Good luck!
