SWASH

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.

hw0799

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!

justin88

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?

genuinecfa

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.

mar350

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.

DoubleDip

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

ramdabom

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!

YouCanDoIt

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.

hassan

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.

Bulla564

Yes, correct.
Like andynyc said, take a look at the 2011 CFAI Mock Q44 (AM Session).