Transcription
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So let's begin the Fulham frolics. Following the introduction, I'll be looking at step acquisitions. The first scenario that we're going to go through and look up is that we have no control and we go to having control.
Okay, so when we're going up the stairs, we go through that fiftieth step, okay, about accounting boundary whereby we begin to consolidate. Keep it is where we have no control. It doesn't necessarily mean that we have 20% and just have an investment. It could mean that we own between 20 and 50% and we have an associate and we have previously been accounting for it under influence, okay, equity accounting. But regardless of whether we had just a simple investment, regardless of whether we had an associate, the treatment is the same. We've gone through the fifteenth step, yeah, we've gone through the door and we are now consolidating.
Okay, so what you've got, the key bit and the key bit to understand is that the way in which the accounting standard looks at it is they say, well, look, you had your previous ownership percentage. So what we're going to go through then and do that is we're going to assume that that has been disposed of. Okay, so it has gone. Okay, so it takes us, if you like, right the way back down to zero. Okay, but then what happens is that you then re-acquire that investment back up to its fair value. Okay, so you go through there and, if you like, revalue your previous investment up to its fair value to get it up to its, its most up-to-date value. So if we owned 40%, we're going to go through there and say, well, look, we've disposed of that 40%. It's all cost. We now recognize the 40% at its fair value. So you will have a gain on the old investments.
And then what you have now is you look at the extra investment that you have made in order to take it from, say, 40% up to, say, 70%. And that's then when you begin to start thinking about calculating your goodwill. Okay, so there's two things to think about. The original investment, we assume is disposed of and then we recognize to fair value. And if that's the case, then what you have is that fair value remeasurement will give you a gain, and that gain goes to profit or loss. Okay, so if I previously held 40%, I would dispose of the 40. We recognize the 40 at fair value. Okay, that gives me a gain to profit or loss. Essentially, if you're looking at the statements of financial position, that gain to profit or loss, essentially it's going to go into working five, okay, part of your group retained earnings.
And then what you go through and do is with the extra investment that you have made, so maybe I bought 30% more. So you had 40, you've now got 30 more, which gives you 70. You then go through there and calculate the goodwill. Okay. You do just need to be very careful, however, when you are calculating the goodwill because there is one additional aspect that you need to consider. Okay, remember when you're looking at the goodwill, you need to look at the entire subsidiary, don't we? So yes, we've paid to get our 30% extra, so that's the cost of the additional investment, isn't it? But we need to put in the fair value of the existing interest. So we said that we previously owned 40%, we remeasured it to fair value. So with our 30% that we've paid, we add on the 40% fair value to show that we own our 70% of the sub. And then we carry on as normal. Yeah, we go through the add on the non-controlling interest at acquisition, so acquisition being the date that we've crossed the accounting boundary, so gone through or gone over that fiftieth step and through the door. And then you deduct the net assets at the date of acquisition. Okay, why'd you do that? That's the goodwill acquisition. And then you carry on as normal in terms of your non-controlling interest and your group retained earnings.
Okay, excellent. So let's go through that and have a look at an example. Okay, so what we've got there, if we pull it together, it says calculate the goodwill to appear in the Jeremy group statements of financial position at the 31st of December 2015. Okay, so it says Jeremy acquired 40% of the equity interest of David for 40 million dollars several years ago. And then on the first of January 2015, Jeremy acquired an additional 35% for 45 million. And the fair value of the identifiable net assets were 105. So we had 40, we've now got an additional 35, so we now have, is it 75%? Okay, if we have 75%, then we have the power to direct the activities and that goes through there and gives us control. So David is now a sub and Jeremy, it is now the parent.
It then goes on to tell us the fair value of the NCI at the first of January, so when it became a subsidiary, was 32 million. And the fair value of the original holding was 52 million. Okay, there we go. So, right, let's go through, work out the goodwill. So the cost of the additional investment, essentially that's thinking about our 35%, isn't it? We've just bought that for 45 million, haven't we? So we're going to work in millions of dollars. Okay. The fair value of the existing interest, so we previously owned 40%, didn't we? We're told of that fair value is there as 52 million. Non-controlling interest at acquisition, so 35 and 40 is 75. The non-controlling interest must be 25. And you can see there that we valued 100% of the subsidiary, haven't we? Which is why we include that existing 40% interest value to show it at its most up-to-date value. But regardless of that, the non-controlling interest at fair value was there, was it, at 32 million. And it tells us that the identifiable net assets are 100% of them, there are 105 million. 45 plus 52 plus 32 plus 105 gives me there, is it 24 million? Okay, so I have 24 billion as my goodwill.
The question doesn't specifically ask us for it, but I will throw it in because what you've got there is that the original investment was 40 million, it is now 52 million. So what you have there is that there is a gain equal, isn't there, to 12 million dollars. I'm not gain of 12 million dollars, what would go into working number five within your group retained earnings. Okay, I've kept it simple. I've made the assumption that the 40% ownership didn't give us any influence. We shall worry about that whereby the, the old investment, if you like, was an investment in an associate whereby you take your cost per share of post-acquisition profits and then that gets revalued up to fair value. Okay, I'm not too worried about that at this point in time. We're just demonstrating how it works with regards to the goodwill and how to calculate the gain. You know, the gain takes the updated fair value compared to the previous value of the investment.
Okay, there we go. Have a work through it. Have a practice at the odd question that's in the revision kit within the study text and your chosen tuition provider. I'll see you within the next session.