DFS Consolidated accounts and goodwill

EsmeEsme Experienced MentorPosts: 711Registered
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

Comments

  • AK002AK002 Font Of All Knowledge Posts: 2,492Registered
    Goodwill for consolidation (in a nutshell) is price paid less net assets.

    It's the amount paid over and above the net assets.
  • sdvsdv Experienced Mentor Posts: 585Registered
    try the following link

    and inparticular see the liks Steve Collings has provided

    [thread=25966]Click Me![/thread]
  • cornflowercornflower Well-Known Posts: 129Registered
    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.
  • EsmeEsme Experienced Mentor Posts: 711Registered
    Thanks guys, and especially for the link.. that info is really helpful!
  • Clare FinchClare Finch Feels At Home Posts: 40Registered
    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 FinchClare Finch Feels At Home Posts: 40Registered
    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
  • EsmeEsme Experienced Mentor Posts: 711Registered
    That's brilliant.. Thanks Clare, I can see where the figures come from now and understand it much more clearly!!
  • Clare FinchClare Finch Feels At Home Posts: 40Registered
    Glad to help..good luck with exam
  • Clare FinchClare Finch Feels At Home Posts: 40Registered
    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 FinchClare Finch Feels At Home Posts: 40Registered
    oh...the columns have merged...

    blow..
  • Clare FinchClare Finch Feels At Home Posts: 40Registered
    answer above on word

    this may make more sense!
  • EsmeEsme Experienced Mentor Posts: 711Registered
    Excellent.. thanks again Clare :)
  • Clare FinchClare Finch Feels At Home Posts: 40Registered
    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
  • EsmeEsme Experienced Mentor Posts: 711Registered
    Upped
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