a parent pays euro 920 to acquire an 80 interest in a subsidiary that owns net asset 611717

Reallocation of goodwill to non-controlling interests

A parent pays €920 to acquire an 80% interest in a subsidiary that owns net assets with a fair value of €1,000. The fair value of the non-controlling interest at the acquisition date is €220.

Decrease in ownership percentage

A year after the acquisition, the parent sells a 20% interest in the subsidiary to a third party for €265.

The parents interest decreases to 60% and its share of net assets decreases to €600. Correspondingly, the share of net assets attributable to the non-controlling interest increases from €200 to €400. The parent company sold a 20% interest in its subsidiary. Therefore, one approach for reallocating goodwill is to allocate €30 (= 20%/80% × €120) of the parents goodwill to the non-controlling interests. After the transaction the parents share of goodwill is €90 (= €120 €30).

In its consolidated financial statements, the parent accounts for this transaction as follows:

Increase in ownership percentage

Taking the initial fact pattern as a starting point, the parent acquires an additional 10% interest in the subsidiary for €115.

The parents interest increases to 90% and its share of net assets increases to €900. Correspondingly, the share of net assets attributable to the non-controlling interest is reduced from €200 to €100. The parent acquired half of the non-controlling interest. Using the proportionate allocation approach discussed above, the parent allocates €10 (= 10%/20% × €20) of the non-controlling interests goodwill to the parent.

In its consolidated financial statements, the parent accounts for this transaction as follows: