Any help Goodwill calculation in Dec. 08 DFS Exam task 1.3
sorcha
Registered Posts: 9 New contributor 🐸
Task 1.3 in Dec 08 DFS exam  Consolidated Balance Sheet  requires a calculation of goodwill at the point of acquisition  which is a standard task.
The model answer from AAT bases the calculation for Goodwill on the parent company's equity not the acquired subsidiary's. Am I missing something here?  I thought the calculation is:
Subsidiary Co's equity at date of acquisition + any revaluation reserves x % acquired, then deduct impairment.
Why does this exam answer base itself on the Parent Co's share of the Subsidiary's equity.
Your help would be very much appreciated here.
The model answer from AAT bases the calculation for Goodwill on the parent company's equity not the acquired subsidiary's. Am I missing something here?  I thought the calculation is:
Subsidiary Co's equity at date of acquisition + any revaluation reserves x % acquired, then deduct impairment.
Why does this exam answer base itself on the Parent Co's share of the Subsidiary's equity.
Your help would be very much appreciated here.
0
Comments

I don't know what's going on with the AAT website at the minute but I can get some question papers and not others and some answers but not others!
However, I did some suggested answers for this paper which mirrored the model answers and they do base the goodwill calculation on Ballalan's position statement as follows:
share capital = 12,000
share premium = 6,000
revaluation res = 4,500
P&L at acq = 9,750
P&L post acq = 1,590
This was the paper where the % holding was 66.667% and you had to turn it into a fraction to get the numbers right.
Kind regards
Steve0 
Goodwill is the amount the parent company pays over and above the value of what its acquiring.
Subsdiary's share capital is £10k and retained earnings £15k at date of acquisition, with a revaluation of £1k . If parent pays £28k for 100% of the shares then the goodwill is £2k
You're muddling it up with the calculations for the parents share of consolidated retained earning. But don't worry cos I've made a mistake much better than that tonight!
Does that help at all?0 
Wow, fast reply, thank you. It must be my misunderstanding, I am tired!
Here's the AAT model answer. The subsidiary company figures are on the left and the Parent on the right:
Goodwill Attributable to holding company
Share capital 12,000 8,000
Share premium 6,000 4,000
Revaluation 4,500 3,000
Post acquisition 1,590
Pre acquisition 9,750 6,500
33,840 21,500
Consideration 32,000
Goodwill 10,500
Less impairment (2,100)
8,400
It looks to me like the calculation on the right hand side leads to a goodwill figure of £8,400 which is in the model answer  but these are from the parent Company, Tolsta...but I must be viewing this in the wrong way. Any further enlightenment?0 
sorry, i had it in a neat table format but it hasn't appeared like that when posted it!0

What the examiner is doing is showing the entire equity in Balallan under "Total Equity" then he is splitting the total equity between "At Acquisition" which is 2/3rds which belongs to Tolsta so the figures on the right are 2/3rds of Ballalan's equity which belong to Tolsta.
The table format does tend to confuse students but it is based on Ballalan's equity.
Kind regards
Steve0
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