Partial Goodwill Method

In the partial goodwill method, goodwill is calculated as the difference between the purchase consideration paid by the parent and the parent's share of the fair value of the net identifiable assets. In the partial goodwill method, only the parent's share of the goodwill is recognized.

Partial goodwill method is not allowed under US GAAP but it is allowed as an option under IFRS (besides the full goodwill method). Goodwill under partial goodwill method differs from goodwill under full goodwill method only in situations in which the parent holds less than 100% of the shares.

Goodwill under full goodwill method exceeds goodwill under partial goodwill method by the non-controlling interest share of the goodwill.

Full Goodwill = Partial Goodwill + Non-controlling interest portion of goodwill


Let's follow the same example that we discussed in full goodwill method.

Company A acquired 75% shareholding in Company B for $20 million. The book value of assets is $54 million while the book value of liabilities is $40 million. The fair values of Company B's assets and liabilities is the same as their book values except accounts receivables which are impaired by $1 million.

The purchase consideration is the cash paid to acquire 75% ownership and it equals $20 million.

Fair value of the net identifiable assets is $13 million ($54 million book value minus $1 million on account if impairment in accounts receivable minus liabilities of $40 million). Company A's share of the net identifiable assets equals 75% of $13 million, which is $9.75 million. Goodwill is hence $20 million minus $9.75, i.e. $10.25 million.

This shall be recognized as follows:

Goodwill$10.25 M
Assets$53 M
Liabilities$40 M
Cash$20 M
Non-controlling interest$3.25 M

Non-controlling interest is calculated as 25% of the fair value of net identifiable assets. It equals $3.25 ($13 million multiplied by 0.25). It can also be arrived at as the balancing figure: (goodwill under full goodwill method + assets acquired − liabilities assumed − cash paid).

Total goodwill under full goodwill method was $13.67 and non-controlling interest was $6.67 million. NCI under full goodwill exceeded NCI under partial goodwill by $3.42 million. This is precisely equal to the goodwill portion of NCI not recognized, i.e. $3.42 million (0.25 of ($26.67 minus $13 million)).

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