Contemporary Financial Accounting: Partial and Full Goodwill Methods

This article discusses the Partial and Full Goodwill Methods used in Contemporary Financial Accounting for the valuation of goodwill. It explains the advantages of each method and their differences. The article also includes a sample acquisition analysis and consolidated financial statements. References are provided at the end.

Running head: CONTEMPORARY FINANCIAL ACCOUNTING
Contemporary Financial Accounting
Name of the Student:
Name of the University
Author’s Note

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CONTEMPORARY FINANCIAL ACCOUNTING
Table of Contents
Requirement a:.................................................................................................................................2
Requirement b:.................................................................................................................................2
Requirement c:.................................................................................................................................7
Partial Goodwill Method.............................................................................................................7
Full Goodwill Method.................................................................................................................7
Reference.........................................................................................................................................9

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CONTEMPORARY FINANCIAL ACCOUNTING
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
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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CONTEMPORARY FINANCIAL ACCOUNTING
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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CONTEMPORARY FINANCIAL ACCOUNTING
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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CONTEMPORARY FINANCIAL ACCOUNTING
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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CONTEMPORARY FINANCIAL ACCOUNTING
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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CONTEMPORARY FINANCIAL ACCOUNTING
Requirement c:
Partial Goodwill Method
Partial Goodwill Method is one of the techniques which is used by businesses for the
purpose of valuation of goodwill of a business. The computation of Goodwill is a difference
between the purchase consideration which is paid and the acquirer’s share of fair value of net
identifiable assets of the business (Zimmermann and Werner 2013). In such method, the share of
goodwill which the acquirer has is recognized as a part of goodwill which is to be computed.
This method is allowable as per IFRS framework but the same is not allowable under US GAAP
framework. Partial Goodwill method differs from Full Goodwill Method when the investment by
acquirer is less than 100%. The advantages of this method are listed below:
 The method measures all assets and liabilities of business and recognizes the goodwill
which is associated with controlling interest.
 The method can be used effectively in the IFRS framework and used for computation of
goodwill which follows IFRS framework.
Full Goodwill Method
This method requires computation of goodwill by analyzing the difference between the
total fair value of targeted company’s net identifiable assets and that of the company’s net
identifiable assets. This method also considers the non-controlling interest of goodwill which is
not the case in partial goodwill. In addition to this, the method is followed effectively under both
IFRS Framework and US GAAP framework (Grossi 2014). The advantages which are associated
with the Full Goodwill method are shown below:

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CONTEMPORARY FINANCIAL ACCOUNTING
 This method considers computation of Goodwill while considering the controlling and
non-controlling interest of the business.
 The method is universally applicable as the method is approved under both IFRS
framework and US GAAP framework for the purpose of valuation of Goodwill.

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CONTEMPORARY FINANCIAL ACCOUNTING
Reference
Grossi, G., 2014. Consolidated financial statements in the public sector. In Public sector
accounting (pp. 63-76). Routledge.
Zimmermann, J. and Werner, J.R., 2013. Variations in Function: A Barrier to Harmonisation.
In Regulating Capitalism? (pp. 41-65). Palgrave Macmillan, London.