Consolidation Statements: Partial and Full Goodwill Method

This article discusses the partial and full goodwill method for consolidation statements. It explains the advantages and disadvantages of both methods. The article is suitable for accounting and finance students.

Running head: CONSOLIDATION STATEMENTS
Consolidation Statements
Name of the Student:
Name of the University
Author’s Note

1
CONSOLIDATION STATEMENT
Table of Contents
Requirement a:.................................................................................................................................2
Requirement b:.................................................................................................................................3
Requirement c:.................................................................................................................................8
Partial Goodwill Method.............................................................................................................8
Advantages of Partial Goodwill Method.................................................................................8
Disadvantages of Partial Goodwill Method.............................................................................9
Full Goodwill Method.................................................................................................................9
Advantages of Full Goodwill Method.....................................................................................9
Disadvantages of Full Goodwill Method...............................................................................10
Reference.......................................................................................................................................11

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CONSOLIDATION STATEMENT
Requirement a:
Dr. Cr.
Date Amount Amount
a.i Share Capital 180
General Reserve 270
Retained Earnings 135
Goodwill 153
Business Combination
Valuation Reserve 126
Invetsments 864
a.ii Cash 117
Dividend Revenue 117
a.iii Cash 135
Interim Dividend Revenue 135
Particulars

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CONSOLIDATION STATEMENT
Requirement b:
Particulars Amount Amount
Consideration Transferred 864
Less:
Share Capital 200
General Reserve 300
Reatined Earnings 150
Land 140
Net Fair Value of Identifable Assets
& Liabilities -790
Add: Non-Controlling Interest @10% 79
Goodwill 153
Acqusition Analysis:

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CONSOLIDATION STATEMENT
Dr. Cr.
Date Amount Amount
b.i Property,Plant & Equipment 200
Business Combination Valuation
Reserve 140
Deferred Tax Liability 60
b.ii Share Capital 20
General Reserve 30
Retained Earnings 15
Business Combination
Valuation Reserve 14
Non-Controlling Interest 79
b.iii Loss on Impairment- Goodwill 10
Accum. Impairment Loss-Goodwill 10
b.iv Sales 350
Cost of Goods Sold 275
Inventory 75
b.v Deferred Tax Assets 22.5
Income Tax Expense 22.5
b.vi Non-Controlling Interest 5.25
NCI Share of Profit 5.25
b.vii Retained Earnings (1/1/x8) 49
Income Tax Expenses 21
Cost of Goods Sold 70
b.viii NCI Share of Profit 4.9
Retained Earnings (1/1/x8) 4.9
b.ix Sales 500
Cost of Goods Sold 500
b.x Dividend Revenue 135
NCI 15
Interim Dividend Paid 150
Particulars

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CONSOLIDATION STATEMENT
Particulars ABC Ltd. XYZ Ltd. Debit Credit Group Debit Credit Parent
Sales 5000 2000 850 6150 6150
Cost of Sales 2570 1025 845 2750 2750
Gross Profit 2430 975 3400 3400
Dividend Revenue 252 0 135 117 117
2682 975 3517 3517
Expenses 2057 300 10 2367 2367
Operating Profit before tax 625 675 1150 1150
Income Tax Expenses 280 260 21 22.5 538.5 538.5
Operating Profit after Tax 345 415 611.5 4.9 5.25 611.85
Retained Earnings (1/1/X8) 294 200 184 310 15 4.9 299.9
Interim Dividend paid -100 -150 -135 -115 -15 -100
Final Dividend Declared -160 -200 -360 -360
Retained Earnings (31/12/x8) 379 265 446.5 451.75
Share Capital 1200 200 180 1220 20 1200
General Reserve 300 270 30 30 0
BCVR 126 140 14 14 0
NCI 0 20.25 79 58.75
Total Equity 1579 765 1710.5 1710.5
Liabilities:
Trade & Other Payables 60 180 240 240
Provision for Final Dividend 160 200 360 360
Deferred Tax Liabilities 60 60 60
Total Liabilities 220 380 660 660
Total Liabilities & Equity 1799 1145 2370.5 2370.5
Assets:
Other Current Assets 385 395 75 705 705
Deferred Tax Assets 22.5 22.5 22.5
Property, Plant & equipment 550 750 200 1500 1500
Investment 864 864 0 0
Goodwill 153 153 153
Accum. Impairment Loss-Goodwill -10 -10 -10
Total Assets 1799 1145 2370.5 2370.5
Adjustment NCI

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CONSOLIDATION STATEMENT
Particulars Group Parent
Sales 6150 6150
Cost of Sales 2750 2750
Gross Profit 3400 3400
Dividend Revenue 117 117
TOTAL REVENUE 3517 3517
Expenses 2367 2367
Operating Profit before tax 1150 1150
Income Tax Expenses 538.5 538.5
Operating Profit after Tax 611.5 611.5
Less: Non-Controlling Interest -0.35
Net Profit attributable to Share holders 611.5 611.85
In the books of ABC Ltd.
Consolidated Income Statement
for the period ended 31/12/X8

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CONSOLIDATION STATEMENT
Particulars Group Parent
ASSETS:
Current Assets:
Other Current Assets 705 705
Deferred Tax Assets 22.5 22.5
Total Current Assets 727.5 727.5
Non-Current Assets:
Property, Plant & Equipment 1500 1500
Goodwill 153 153
Accum.Impairment Loss -10 -10
Total Non-Current Assets 1643 1643
TOTAL ASSETS 2370.5 2370.5
LIABILITIES:
Current Liabilities:
Trade & Other Payables 240 240
Provision for Final Dividend 360 360
Deferred Tax Liabilities 60 60
Total Current Liabilities 660 660
Non-Current Liabilities 0 0
TOTAL LIABILITIES 660 660
NET ASSETS 1710.5 1710.5
EQUITY:
Share Capital 1220 1200
General Reserve 30 0
Retained Earnings 446.5 451.75
BCVR 14
NCI 0 58.75
TOTAL EQUITY 1710.5 1710.5
In the books of ABC Ltd.
Consolidated Income Statement
for the period ended 31/12/X8

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CONSOLIDATION STATEMENT
Requirement c:
Partial Goodwill Method
Partial Goodwill method can be defined as the process in which the calculation of
goodwill is done by considering the difference between the purchase consideration which is paid
and the acquirer’s share of fair value of net identifiable asset of the business. In case of partial
goodwill method, the shares of goodwill which the acquirer has is recognized as a part of
goodwill (Whiting, Hansen and Sen 2017). It is to be understood that partial goodwill method is
not allowable under US GAAP but the same is allowed as a method of calculating goodwill
under the IFRS structure. Another important thing about partial goodwill method is that the
method differs from the full goodwill method only in certain situations where the investment by
the acquirer is less than 100%. Partial Goodwill method is used by companies which follow the
IFRS framework for the purpose of reporting for accounting transactions.
Advantages of Partial Goodwill Method
The advantages which is associated with partial goodwill method can be discussed as
shown below:
 The partial goodwill method allows the businesses to measure the assets and liabilities of
the business.
 The method recognizes only the goodwill which is associated with the controlling interest
in the opinion.
 The method is allowed by IFRS standards which are to be followed by the companies for
the purpose of measuring the goodwill of the business.

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CONSOLIDATION STATEMENT
Disadvantages of Partial Goodwill Method
The disadvantages of using partial Goodwill method for the purpose of measuring
goodwill are given below:
 The method does not recognize the non-controlling interest of the business in
computation of Goodwill.
 The method is not allowable under the US GAAP framework therefore the method is not
universally applicable by all companies.
Full Goodwill Method
In case of Full goodwill method, the calculation for goodwill is done by considering the
difference between the total fair value of the targeted company and the fair value of the
company’s net identifiable assets (Boennen and Glaum 2014). The method considers the non-
controlling interest of a goodwill which is not the case in partial goodwill method. The
accounting structure of US GAAP mandatorily requires businesses to follow the full goodwill
method for the purpose of measuring the goodwill of the company (Gardini and Grossi 2014).
On the other hand, the accounting structure which is provided by the IFRS framework requires
companies to follow any of the two options available which are partial goodwill method or full
goodwill method.
Using the framework which is provided by full goodwill method, businesses are able to
measure the entire assets and liabilities which the business possess along with the controlling and
non-controlling interest which is included in the goodwill.

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CONSOLIDATION STATEMENT
Advantages of Full Goodwill Method
The advantages which are associated with the application of full goodwill method can be
explained in the point form below:
 The full goodwill method of measuring the goodwill considers the non-controlling
interest and controlling interest of the business in case of goodwill measurement.
 The full goodwill method is allowed by both US GAAP and IFRS framework and
therefore the method can be universally applied by most of the companies for the purpose
of measuring the goodwill of the business (Welc 2015).
 This method allows the companies to consider and measure all the assets and liabilities of
the business for the purpose of measuring the goodwill of the business.
Disadvantages of Full Goodwill Method
The disadvantages which are associated with the full goodwill method are listed below in
details:
 The computation and measurement of Goodwill is complex under this method as the
method considers both controlling and non-controlling interest of the business.
 Full Goodwill method can be manipulated easily and therefore may sacrifice the
reliability, comparability and transparency of the financial statements of the company.

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CONSOLIDATION STATEMENT
Reference
Boennen, S. and Glaum, M., 2014. Goodwill accounting: A review of the literature.
Gardini, S. and Grossi, G., 2014. Voluntary adoption of the consolidated financial statement and
fair value accounting by Italian local governments. Journal of Public Budgeting, Accounting &
Financial Management, 26(2), pp.313-344.
Welc, J., 2015. Full-Goodwill Method of Accounting for Business Combinations and Quality of
Financial Statements.
Whiting, R.H., Hansen, P. and Sen, A., 2017. A tool for measuring SMEs’ reputation,
engagement and goodwill: A New Zealand exploratory study. Journal of Intellectual
Capital, 18(1), pp.170-188.