Consolidated statements

Sineadp

Im studying Financial statements and didn't know if anybody knew how to work out Goodwill and Retained earnings from infomation that will be given in assessments. Ive tried to work it out but just can't understand from the two companys how they work the anwsers out also not sure what infomation they use.

Kaii

Hi Sinead, do you have an example of a question? Goodwill can be calculated from a lot of things. For example in consolidated statements, it would depend on the % share that the parent owns of the subsidiary. I find that if you remember the definition of goodwill (IFRS 3), then it can also help as it can be defined as "the excess cost of the business combination over the acquirers interest in the fair value of the identifiable assets and liabilities" - or in simplified terms: The value above the market rate of all assets of the acquired subsidiary.

The pro-forma working that I like using is:

Price Paid X
Share Capital Acquired (X)
Retained Earnings Acquired (X)
Other Reserves Acquired (X)
Goodwill on Acquisition X
Less: Impairment (If any)
Goodwill in SOFP:

Hope that makes sense?

Sineadp

We haven't been given that formula in the new syllabus, we have a different one

Adele69

There are several ways of working out Goodwill. I struggled at first on this, moreso with adjustments for Impairment which made my Retained Earnings figure wrong. I didn't learn the method in the Osbourne books (which made some question practice a bit awkward) but by the time it came to doing practice assessment, then the exam had it dialed in.

Sineadp

I am struggling with the Osborne book practice questions because they all seem so difficult, and always different ways to confuse you.

Did you pass the exam ok ? when you did Financial statements

Adele69

It's kind of difficult to put up a standard process because of the variables. In the simplest example, if the Consolidated Statement date was same as Acquisition date, there would be no change in Retained Earnings and no Impairment to consider. Then it would be (and this differs from the Osbourne method):

Parent company's amount paid at acquisition
less
Subsidiary company's Equity (usually Share Capital, Retained Earnings as a minimum) x % ownership.

This is the same as shown in the AAT Elearning module for Goodwill in the Study Section (page 9 of 15)

Equity can also include Share Premium and other reserves, often Revaluation reserve.
Impairment would credit Goodwill and debit Retained Earnings, this caused me all sorts of issues in early questions. Hopefully got that right.

Are you doing Self Study?