We have learnt earlier that NCI @ acquisition can be calculated with 2 methods which are:\

1. Partial goodwill - proportionate to fair value of net assets of S @ acquisition

2. Full goodwill - fair value of shares held
The formula for partial goodwill is:
NCI % x FVNA
For calculating full goodwill the following is used:
No of shares owned by NCI X prevailing market price of subsidiary's ord shares @ acquisition
Example
P acquired 200,000 units of ordinary shares out of a total 250,000 ordinary shares belong
to S on 31.12.20X4. The market price for ordinary shares belonging to S on that date was
RM3.20. Determine the NCI.
Number of shares owned by NCI is 250,000 - 200,000 = 50,000 units
Solution
NCI based on fair value of shares held is:
50,000 x RM3.20 = RM160,000
This NCI will be used instead of percentage from FV of NA @ acquisition.
Using this NCI will result in full goodwill.

Question to attempt
P acquired 80% of ordinary shares belonging to P on 31.12.20X5 by issuing 60,000 units of its
ordinary shares. The retained earnings of S on that date was RM56,000.
The following is an extract of the statement of financial position @ 31.12.20X8:

Ordinary shares
Share Premium
Retained earnings
Liabilities
Market price for ordinary shares (RM)
@ 31.12.20X5
@ 31.12.20X6
@31.12.20X7
@31.12.20X8

P
2,000,000
150,000
1,458,200
890,600
P
3.20
3.60
3.15
3.00

Determine the goodwill@ acquisition using the full goodwill method.

ulated with 2 methods which are:\

ts of S @ acquisition

bsidiary's ord shares @ acquisition

250,000 ordinary shares belong

belonging to S on that date was

0,000 units

@ acquisition.

2.20X5 by issuing 60,000 units of its

was RM56,000.
osition @ 31.12.20X8:

ill method.

S
100,000
20,000
87,000
66,300
S
2.50
2.40
2.25
2.30

When consolidation date is after the acquisition date, additional adjustments need to be made.
Adjustments have to be made for various reasons:
1. Eliminate pre-acquisition reserves belonging to subsidiary
2. Fair value changes in depreciable assets which requires depreciation adjustments
3. Intercompany profits due to sales of assets
4. Income derived from companies within the group
ELIMINATING PRE-ACQUISITION RESERVES
In consolidating, pre-acquisition reserves must be eliminated as the balances have
been taken up in the calculation of goodwill.
Exercise 1
The following is the extract of S statement of financial position for the respective dates:
Assume P owns 80% of ordinary shares in S.
Date of
acquistion
31.12.20X2
Ordinary shares
Revaluation reserve
Retained earnings

2,000,000
250,000
987,000

Solution
Adjustment:
S's books
RE @ conso
Less) RE @ acquisition
Post acquisition RE
RR @ conso
Less) RR @ acquisition
Post acquisition RR

1,200,500
(987,000)
213,500
280,000
(250,000)
30,000

stments need to be made.

on adjustments

balances have

e respective dates:
Date of
consolidation
31.12.20X3
2,000,000
280,000
1,200,500

NCI

42,700

6,000

GRE

GRR

170,800

24,000

ADJUSTING FAIR VALUE CHANGES

Exercise 1
P Bhd acquired S on 31.12.20X1. The fair value of land, building and machinery belonging to S
were determined as RM3.5 million, RM1.25million and RM840,000 respectively.
None of the fair value has been adjusted in the S's books.
The following is an extract of statement of financial position of S on 31.12.20X2:
Non current assets
Land
Building
Machinery

RM
3,000,000
900,000
750,000

You are required to prepare consolidated accounts on 31.12.20X2.

Solution

Balance @ 31.12.20X1

Cost

Land
Building
Machinery

3,000,000
1,000,000
900,000

Adjustment:
S's books
Post acquisition RE
Less) depreciation building
Add) depreciation machinery

Question to attempt

P acquired S on 31.12.20X4. The fair value of plant and equipment belonging to S was RM1.5 million a
The useful life for both the assets are 10 years each. The assets were not adjusted to its fair value. Th
recorded in S's books on 31.12.20X7 are RM700,000 for plant and RM315,000. Determine the adjustm
consolidated accounts on 31.12.20X7.

nd machinery belonging to S
respectively.

on 31.12.20X2:
Useful life
9 years
5 years

nce @ 31.12.20X1

Fair value

3,500,000
1,250,000
840,000

Fair Value
Adjustment
500,000
250,000
(60,000)

Useful Life

10 years
6 years

XX
(25,000)
10,000

t belonging to S was RM1.5 million and RM500,000.

were not adjusted to its fair value. The net book value
RM315,000. Determine the adjustment needed to prepare

Depreciation
Adjustmt/yr
nil
25,000
(10,000)