Impaired goodwill

mge

In the consolidated statements I see that the entire amount of impaired goodwill is deducted from the retained earnings attributed to the parent.

Just wondering why a share of the impaired goodwill is not deducted from the retained earnings of the non-controlling interest.

Any help is much appreciated.

Steve Collings

The entire goodwill belongs to the parent and arises as a result of the acquisition of the subsidiary so any impairment will belong solely to the parent. It would be unfair to reduce the NCIs share of retained earnings just because the directors feel their goodwill is impaired.

However, (and you won't come across this in AAT exams) if the goodwill was recognised under the 'full' method i.e. the NCIs share recognised as well (which would be at fair value) then some of the impairment would go to NCIs retained earnings.

Hope that helps.

Regards
Steve

mge

That's extremely helpful Steve. Many thanks for that

I have another question on a related matter if that's alright:

If there is an inter-company sale, where the subsidiary sells to the parent, is a portion of any unrealised profit taken off the retained earnings of the non-controlling interest?

Many thanks for your help. It is very much appreciated.

Steve Collings

Hi,

No you don't deduct anything from non-controlling interests as this is an intra-group sale. The unrealised profit in inventory would be credited against inventory (to reduce inventory back to cost to accord with IAS 2 principles), the debit would go against consolidated retained earnings.

I wrote an article on consolidated SoFPs last year which you might wish to look at. I have used an example of where unrealised profits on inventory are still in inventory and how to deal with them.

I hope that helps.

Best regards
Steve