2. Examples of the acquisition method

(CU = Currency Unit)

2.1. Simple acquisition with non-controlling interests (NCI)

F  → 75% →  G

Fact pattern:

• Entity F acquires 75% of the shares in entity G for cash of CU 5000
• Transaction costs incurred in the acquisition: CU 1000
• Fair value of net assets of entity G at acquisition date: CU 4000
• Fair value of the NCI is CU 1200

How is goodwill calculated?

2.2. Change in ownership interests

2.2.1. Increase in ownership interests

Step acquisition with NCIs: Example from 0% to 25% to 80%

F  → 25% → 55% →  G

Fact pattern:

• Y: Entity H acquired 25% of the shares in entity G for CU 50 (25% gives H significant influence over G ), when the Fair Value of the net assets of G was CU 100
• Y+1: Entity H purchased a further 55% of the shares in entity G for CU 125 (55% results in H controlling G ), when the Fair Value of the net assets of G was CU 160.
  The Fair Value of the 25% equity interest was CU 75.
  The Fair Value of the NCI was CU 40

How is goodwill calculated?

2.2.2. Decrease in ownership interests

Loss of control: Example from 90% to 10%

F  → 90% → 10% →  G

Fact pattern:

• Entity F  has 90% controlling interest in entity G .
  On Dec 31, Y, the carrying value of G ’s net assets in entity’s F consolidated financial statements is CU 100 and  the carrying amount attributable to the NCI in entity G (incl. the non-controlling interest’s share of accumulated other comprehensive income) is CU 10 on Jan 1, Y+1.
• Entity F sells 80% of the share in entity G to a third party for cash proceeds of CU 120.
  As a result of the sale, entity F loses control of entity G but retains a 10% NCI in entity G . The fair value of the retained interest on that date is CU 12

How is the gain (or loss) on sale of 80% interest in entity G calculated?

LESS