Question

There are two approaches to measuring non-controlling interests, each of which will lead to a different amount being attributed to reported goodwill. Will the choice of either method of accounting for non-controlling interests impact any goodwill impairment expenses that might subsequently be recognised?

Answer 1

We know that, there are two approaches to measuring non-controlling interests-

1. Proportionate share of the acquiree’s identifiable net assets under a sequential consolidation approach.

2. Fair value approach.

In the proportionate share of the acquiree’s identifiable net assets under a sequential consolidation approach, If the non-controlling interest in the immediate parent and the sub-subsidiary is measured , goodwill impairment losses are not deducted from profit for the year when measuring non-controlling interest.

Under this method of valuation, goodwill impairment losses are not allocated to the non-controlling interest. The logic behind this position is that goodwill has been calculated in accordance with the parent entity concept of consolidation.

In fair value approach, If the non-controlling interest in the immediate parent and the sub-subsidiary is measured at fair value, then any goodwill impairment losses associated with the acquisition of the immediate parent and the sub-subsidiary must be deducted from the respective profits for the year. Any goodwill impairment losses from the previous period and associated with the immediate parent or sub-subsidiary must be deducted from the respective post acquisition retained earnings.

Under this method of valuation goodwill impairment losses are allocated between the parent and the non-controlling interest on the same basis as that on which profit or loss is allocated. The logic behind this position is that the goodwill relating to both the immediate parent’s interest in the sub-subsidiary and the non- controlling interest in the sub-subsidiary is recognised upon consolidation, because goodwill is calculated in accordance with the entity perspective of consolidation.