Auditing

Chapter 04 - International Financial Reporting Standards: Part I

32. Bartholomew Corporation – Goodwill (impairment)

Calculation of Recognized Noncontrolling Interest

Fair value of net assets (excluding goodwill) $5,000,000

Noncontrolling interest % 20%

Noncontrolling interest $1,000,000

Calculation of Unrecognized Noncontrolling Interest

Implied fair value of 100% of Samson Company $5,000,000 / 80% = $6,875,000

Noncontrolling interest % 20%

Fair value of noncontrolling interest $1,375,000

Recognized noncontrolling interest 1,000,000

Unrecognized noncontrolling interest $ 375,000

Calculation of Goodwill

Consideration transferred $5,500,000

Plus: Noncontrolling interest (recognized) 1,000,000

Subtotal $6,500,000

Less: Fair value of net assets (excluding goodwill) ,5,000,000

Goodwill $1,500,000

The summary journal entry to recognize the acquisition of Samson’s shares would be:

Samson’s net assets $5,000,000

Goodwill 1,500,000

Cash $5,500,000

Noncontrolling interest 1,000,000

Impairment Test, End of Year 1 Net assets Goodwill Total

Carrying amount $5,000,000 $1,500,000 $6,500,000

Unrecognized noncontrolling interest 0 375,000 375,000

Adjusted carrying amount $5,000,000 $1,875,000 $6,875,000

Determination of recoverable amount:

Fair value less costs to sell (a) $5,000,000 - $200,000 = $4,800,000

Present value of future cash flows (b) 4,750,000

Recoverable amount (higher of (a) and (b)) 4,800,000

Impairment loss (adjusted carrying amount less recoverable amount) $2,075,000

Allocation of impairment loss

Goodwill $1,875,000

Samson’s net assets 200,000

Total $2,075,000

The allocation of impairment loss to goodwill is shared between the controlling and

noncontrolling interest. Thus, $1,500,000 (80%) is allocated to the parent’s investment in

Samson Company; the remaining $375,000 (20%) is attributed to the noncontrolling interest

but is not recognized. Bartholomew will reflect Goodwill of zero on its December 31, Year 1

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32. Bartholomew Corporation ±...