Business combinations - part 2

In this lesson

1. 0:00 Two methods for calculating noncontrolling interest
2. 0:58 Worked example: Salt and Pepper company acquisition
3. 2:14 Fair value method calculation step by step
4. 4:03 Proportionate share method calculation step by step
5. 5:15 Goodwill impairment testing and allocation
6. 6:46 Impairment example: Fish and Chip company fair value
7. 8:15 Impairment under proportionate method approach

About this lesson

Understanding which method to apply and how each affects goodwill calculation is essential for consolidation questions across ACCA papers, particularly SBR and AFM. This lesson walks you through the mechanics of both approaches using worked examples. With the fair value method, you measure the NCI at its market value and recognise full goodwill, including the portion attributable to the minority shareholders. With the proportionate method, you calculate NCI as a percentage of the subsidiary's net assets and recognise only the parent's goodwill. You'll see how the choice between methods impacts your consolidation figures and why companies can use different methods for different subsidiaries. The video also covers goodwill impairment testing under each method. With fair value measurement, impairment is straightforward: you compare total assets (goodwill plus net assets) to the recoverable amount and split any loss between parent and NCI. With the proportionate method, you must gross up goodwill to its notional full amount to test for impairment correctly, then recognise only the parent's share of any loss. Working through practical examples, you'll see how both approaches arrive at the same final carrying value, just through different routes.

Duration: 10m