HI TO ALL,

I have just noticed that there is difference in the calculation method i.e ( FTC & BPP) of

GOODWILL & MINORITY INTEREST - in consolidated accounts for Mixed shape group structure.

I have done calculation both from FTC & BPP method and both produce slightly different results for "goodwill/ MI" which should not be the case as the answer should be one irrespective what ever method applied for its calculation.


If some one in the forum has also experienced the same case so PLEASE confirm which method is the CORRECT METHOD.


regards

asim.

Do you mean in d shaped groups?

There are two different goodwill calculations depending on when a sub and subsub is aquired. is this what you mean?

I have learned with bpp so what is the ftc method?

ya ur correct I am talking about the Mixed D-shaped group structure in which case the Holding has DIRECT interest in sub-subsidiary and INDIRECT interest via subsidiary.

In FTC method calculations are performed for Goodwill/minority from the group perspective i.e the effective interest holding in the sub-subsidiary.


BUT THE THING IS THAT WHY THERE ARE 2 DIFFERENT ANSWERS FOR SAME QUESTION WITH EITHER BPP & FTC METHOD, SHOULDNT IT BE ONE ANSWER..??

Can you put down the method FTC have said.

BPP do use two methods, one for when the parent acquires a sub then that group acquires another sub. then the other is when a parent acquires a sub that already has its own sub.

Are you getting confused with those methods?

Hi blue,

I have below used an example to give u and understanding of what I am asking ,

H- acquired 60% of the share capital of S on 01.01.02 & 10% of SS on 01.01.03. the cost of investment were £142 & £ 43 respectively. S - acquired 70% of the share capital of SS on 01.01.03.

profit/loss balances for S & SS are as :

@ 01.01.02 01.01.03
S ltd 45 60
SS ltd 30 40

Any goodwill is capitalised and reviewd for impairment i.e not amortised.


balance sheet @ 31.12.09
H ltd S ltd SS ltd.
fixed asset 720 60 70
investment in group comp. 185 100 -
current assets 175 95 90
creditors (120) (65) (45)


share capital £1 ord.shares 400 100 50
profit/loss 560 190 115


prepare consolidated balance sheet @ 31.12.09

NOW U GOT JUST 25 minutes to solve it...lol.

will give u the results under both methods which is below,

SOLUTION:
BPP FTC

goodwill 126 111.20
tangible asset 850 850
current asset 360 360
creditors -230 -230

totals 1106 1091.20

share capital 400 400
consolidated P/L 600 600
Minority interest 106 91.20

totals 1106 1091.2

now after above exercise and the different figures for goodwill/minority int. under both the BPP & FTC method with same question is what my question.. :?:

hope u now got my point and give an answer to it.

regards,

asim

What percentages are you using for the goodwill and minority interest?

As the sub sub was purchased after the sub I believe you should be using the actual percentages not the effective interest, is this what you used?

If the sub sub was already owned by the sub then you would use the effective interest (direct + indirect) percentage.

Is this what the problem is? If not then I don't have an answer but I can't believe there are 2 answers to the same question.

ya as per FTC text book calculations im using the effective interest in the calculations in both cases i.e ss already owned and owned after acquisition.


Is the method given in FTC is correct or wrong..?

I have only been taught the way I have said, there is a debate on get through guides about it and they seem to agree with the BPP method.

I'm not sure why minority interest is coming out as different percentages because you should always use effective interest for minority interest and retained earnings. The percentages are only used differently for goodwill.

Very odd that FTC has a different method.

I have search on the internet & think i have found the answer to my question & the method FTC is using is same which is detailed in the following link

http://www.cimaglobal.com/cps/rde/xchg/live/root.xsl/2811_3061.htm

Extract taken from above link is,

Question
Is there any difference in calculating figures for goodwill, reserves and MI in consolidation when a parent has acquired a subsidiary first and the subsidiary has then acquired another company (in a later date which will be a sub subsidiary for the parent), as opposed to the situation for a company that has acquired a subsidiary first and we -as a parent-have acquired that company later. I am in doubt about the use of true percentage representing the parent company's share of goodwill of the sub-subsidiary.
Answer

The key here is that the sub-subsidiary is consolidated only from the date of effective control. So if H acquires S on 1 January 2006 and S acquires SS on 1 June 2006, SS is included in the consolidated accounts of H from 1 June 2006. If H acquires S on 1 January 2006 and S acquires SS on 1 October 2005, SS is included in the group accounts of H from 1 January 2006. These dates also dictate the figures to be used in the goodwill calculation.

In the exam, you must make sure you get the easy marks on offer. With the above in mind, much of the consolidation is no different to that of a simple group, so I’d suggest doing the basics first and leaving the more complex figures (e.g. goodwill, consolidated reserves, minority interest) until the end.

When working out goodwill, remember that you must calculate from the ultimate holding company’s perspective. So if H owns 80% of S who owns 75% of SS, you must compare 80% of the price paid by S with 80% x 75% = 60% of the net assets of SS to work out the goodwill in SS from H’s perspective. Alternatively, calculate as normal for S and then multiply the result by 80% to get H’s share.

When calculating minority interest, remember to adjust for H’s minority interest in S’s cost of investment in SS – since this cost of investment has not been included in the consolidation, the share of net assets given to the minority must be reduced (in the above example, 20% of the original cost of SS, as paid by S, must be deducted from minority interest).

regards,

You do it your way - I'll do the way I have been taught, there have been past papers done the way I have been taught (as far as I know) so I'll stick with it.

I'll see if I can find out some more info and post back

Stick with the method you know, that's the best way.

I'm investigating as to why BPP is showing a different method, let's hope the standard allows 2 methods!!

I have been in touch with the author of the revision book and she has confirmed that both methods are equally valid as agreed with the examiner. It was one of the specific things they checked with him.

There is no fixed rule under the standard so the best route is to carry on the way you have been if you understand that way.

That relieves me as I understood that method, you know that now we have been through this - it won't come up!

thanx blue for all of ur efforts and best of luck in ur exams...

I would say this forum is really helpful.

regards

........ it doesnt matter which way you do it - BPP or FTC

the examiner will accept both..

BPP, as I understand are going to be changing the method of the gross calculation (ie sub is aquired first) to equal other co.s like FTC........

Reason? They are aware it causes confusion! Also:

None of the the standards specify an approach - hence the different practices