DFS Consolidated accounts and goodwill

Esme

Does anyone have any guidance notes for calculating goodwill when consolidating accounts? I'm trying to do Dec 09's paper and am seriously confused as to where the figures are coming from in Part B. My Osbourne tutorial book isn't helping much either

AK002

Goodwill for consolidation (in a nutshell) is price paid less net assets.

It's the amount paid over and above the net assets.

sdv

try the following link

and inparticular see the liks Steve Collings has provided

[thread=25966]Click Me![/thread]

cornflower

Steve Collings is definately god where accountancy is concerned.
When I did DFS his posts were the ones that helped better than any of my tutors advice.

Esme

Thanks guys, and especially for the link.. that info is really helpful!

Clare Finch

Hi Esme,
I will reply to this ...just tried but answer srambled and vanished!

Question is on my desk!..but being summoned for lunch

Thanks

Clare

Clare Finch

Goodwill calc- Dec paper

Hi Esme,

It just so happens I had this question on my desk.

There are many different ways of laying out the answer but the info needed is consistent.

1. You need to identify the day when Wells gained control of Wilkie - the date of acquisition- and the percentage holding.

The date is given at bullet point 2 - 1st November 2008

You have to calculate the percentage holding...no of shares acquired/ total no of shares

Bullet point 2 tells you you acquired 6,000,000 shares in Wilkie. The balance sheet (SOFP) shows Wilkie has 8,000,000 shares in total. 6,000,000/8,000,000

so a 75% holding gained on 1st Nov 2008 ( classically W1).

2. You need to calculate the net assets of Wilkie at the date of acquisition.

Net Assets = Share capital plus all reserves

Share capital and share premium are picked up from wilkies balance sheet(SOFP)
Retained earnings are given at bullet point 3

If there is any material difference between the book value of these net assets and their fair value (market value) they need to be adjusted to fair value (we call this a fair value adjustment). Bullet point 4 tells you one is needed.

W2 Net assets Date of acquisition
1st Nov 2008
£000

Share capital (from sofp) 8,000
Share premium (from sofp) 4,000
Retained earnings(from bp3) 5,344

BOOK VALUE OF NET ASSETS 17,344

Fair value Adjustment
Non current assets (bp4)
(22,200-16,200) 6,000

FAIR VALUE OF NET ASSETS 23,344


You now have all the info you need to construct a goodwill working (classically W3)

W3 Goodwill

You need to know how much it cost for Wells to gain control of Wilkie. You pick this up from Wells balance sheet (SOFP) where the cost of the investment is recorded. This is called the purchase consideration, but is just the cost of the shares

W3 Goodwill

Purchase Consideration 19,000 (from Wells SOFP)

For 75% fair value of net
assets at date
of acquistion
75%(23,344)(W2) (17,508)


Goodwill 1,492 (only an asset on SOFP if not impaired)

Impared to date
bullet point 7 (373) (expense in year- reduces reserves)
(25%1492)

Intangible 1,119 (for your consolidated SOFP)



Basically goodwill is the difference between what you paid and what you got..

Many ways to lay it out the principals are standard..

Hope that helps

Clare

Esme

That's brilliant.. Thanks Clare, I can see where the figures come from now and understand it much more clearly!!

Clare Finch

Glad to help..good luck with exam

Clare Finch

Dec 09 exam - post acquisition profits

Hi Esme,

I am answering this query on the original thread because of the link between the two.
One of the easiest ways to sort out post acquisition profits is to make W2 (from above) a three column working.

W2 Net assets

Date of acquisition
1st Nov 2008
£000

Share capital (from sofp) 8,000
Share premium (from sofp) 4,000
Retained earnings(from bp3) 5,344

BOOK VALUE OF NET ASSETS 17,344

Fair value Adjustment
Non current assets (bp4)
(22,200-16,200) 6,000

FAIR VALUE OF NET ASSETS 23,344


Alongside rule 2 more columns - Net assets at the reporting date (21 October 2009) and Post acquisition profit

W2 Net assets

Date of acquisition Reporting date Post acquisition
1st Nov 2008 31 Oct 2009
£000 £000 £000

Share capital (from sofp) 8,000 8,000
Share premium (from sofp) 4,000 4,000
Retained earnings 5,344 8,332(from q'n) 2,988

BOOK VALUE OF NET ASSETS 17,344 20,332

Fair value Adjustment
Non current assets (bp4)
(22,200-16,200) 6,000 6,000

FAIR VALUE OF NET ASSETS 23,344 26,332 2,988



This gives the added advantage of forming the basis for the calculation of all 3 core workings.


Net assets at date of acquisition gives the basis for calc of goodwill (as above)

Net assets at reporting date gives basis for calc of non-controlling interest (classically W4)

Difference between the 2 is post acquisition profit which is needed to calculate group reserves (classically W5)


so:

W4 Non-controlling interest

Non- controlling interest % x net assets at reporting date (at fair value)

25% (26,332) from W2 above = 6,583


W5 Retained earnings

100% parent 26,036
our share post acq
reserves of subsidiary

75% (2,988) from w2 2,241

less impairment
(W3) (373)

Retained earnings 27,904


These five core working work for every single consolidated statement of financial position question...quick, easy, effective..

Hope this makes sense

Regards

Clare

Clare Finch

oh...the columns have merged...

blow..

Clare Finch

answer above on word

this may make more sense!

Esme

Excellent.. thanks again Clare

Clare Finch

No problem...hope it helps

that 5 core working approach really does the job for all consolidated statement of financial positions!!

Keep up the practice...and learn your accounting standards!!

Good luck

Clare

Esme

Upped