UK Goodwill/Minority interest on investment in subsidiary

[Nickers]

Hi all.

I’ve been scouring the web and my old ACCA books but can’t seem to get definitive answer to my query.

I have a company that is looking to purchase 80% of the shares in another company and I’m a little confused on the treatment/entries that will be required for the investment.

The shares will be purchased for £800k valuing the company at £1m, albeit they have negative net asset value of circa £1m so there is a significant amount of goodwill on this purchase. They will then buy the rest in 5% increments over four years on a call option at an agreed multiple on profits less debt.

So my question, does the acquirer recognise the full amount of goodwill on their balance sheet, ie the 100% value (c£2m), or only the 80% they are buying?

If the full 100%, how are the future share purchases handled?

If option two, is goodwill revalued when the 5% call options are taken each year?

Hope I’ve given enough details, thanks in advance!

 

[LUXMAN SHANKAR]

Hi
Goodwill will be computed only for the 80% acquisition. From the total consideration of 80mn GBP, the sum of 80% of the book value and 80% of the fair valuation differences will be deducted and the balancing number will be goodwill. NCI values will be ex-goodwill (though the standard allows NCI goodwill to be recognized if fair valuation of their interests is also done)
Further goodwill will be added when the remaining 20% is also acquired, each time the option is exercised.
Hope this helps