DFS- Goodwill and Minority Interest

lucy1988

HI,

I am getting really confused with working out good will and Minority interest. If they dont give you the % of good will how do you work this out?

I have been practising dec 08 paper and for task 1.3 i got the goodwill % as 66.66% not sure if this is correct and then when i come to work out the minority interest i cant seem to get the answer in the question.

PLease can anyone help me?

Thanks
Lucy

Steve Collings

This was a confusion for most students. You need to turn the 66.67% into a fraction of 2/3rds which will then give you the right answer.

Regards
Steve

lucy1988

OK thanks for getting back to me.

How do you work out the Minority interest of £11280?

Thanks

Steve Collings

The way the answer works is quite confusing but a net assets table is the best way to work it (see the model answer).

Basically we have worked out that the parent owns 2/3 so the minority interest must own the remaining 1/3, so the minority interests own:

Share capital (8,000 x 1/3) = 4,000
Share prem (6,000 x 1/3) = 2,000
Revaluation (4,500 x 1/3) = 1,500
Sub total...........................7,500

With the reserves this is where it gets tricky. The retained earnings balance in the subsidiary is $11,340. However at the acquisition date the retained earnings were $9,750 (per the notes to the question). The difference of ($11,340 - $9,750) is the POST acquisition profits of $1,590. Of this $1,590 2/3 belongs to the parent ($1,060) the remainder to the minority interest ($530). The balance of the reserves AT acquisition of $9,750 means that 2/3 belongs to the parent ($6,500) and the remaining $3,250 belongs to the minority interest, so:

Sub total b/f.................7,500
Share of post acq profit.....530
Share of pre acq profit....3,250

To minority interests.....11,280


I hope that helps you.

Regard
Steve

lucy1988

Yes i understand now...thank you.