Goodwill Calculator: Goodwill on Acquisition with Non-Controlling Interest

How it works

Goodwill = consideration transferred + non-controlling interest + fair value of any previously held interest − fair value of identifiable net assets · Consideration = cash + fair value of shares issued + present value of deferred consideration + fair value of contingent consideration · NCI (full goodwill) = fair value of NCI shares · NCI (partial goodwill) = NCI % × net assets · Negative result = gain on bargain purchase

Goodwill is the part of an acquisition price that cannot be assigned to identifiable assets and liabilities: things like the workforce, expected synergies, market position and future customers. Under IFRS 3 and US GAAP (ASC 805), the buyer measures what it gave up (the consideration), adds the non-controlling interest and any stake it already held, and subtracts the fair value of the identifiable net assets acquired. Net assets are measured at fair value on the acquisition date, not at the target’s book value, and include intangibles the target never recorded, such as brands or customer relationships. The consideration includes cash, the fair value of shares issued, deferred payments discounted to present value and contingent (earn-out) payments at fair value. Legal and advisory fees are expensed, not added to goodwill. When the buyer acquires less than 100%, the non-controlling interest (NCI) can be measured at fair value, which records goodwill for the whole business (full goodwill), or at its share of net assets, which records goodwill only for the parent’s share (partial goodwill). IFRS allows either choice deal by deal; US GAAP requires fair value. If the result is negative, the deal is a bargain purchase and, after rechecking the numbers, the gain goes to profit or loss. Goodwill is then tested for impairment at least once a year; enter a cumulative impairment under More options to see the carrying amount and, under the full goodwill method, the share charged to the NCI. This is an acquisition-accounting tool. To estimate what a business is worth before you buy it, use the business valuation calculator.

Worked example

A company buys 80% of a target for $5,000,000 cash. The target’s identifiable assets are worth $6,500,000 at fair value and its liabilities $2,500,000, so net assets are $4,000,000. The remaining 20% (the NCI) has a fair value of $1,000,000. Goodwill = $5,000,000 + $1,000,000 − $4,000,000 = $2,000,000, of which $5,000,000 − 80% × $4,000,000 = $1,800,000 belongs to the parent and $200,000 to the NCI. Goodwill is 40.0% of the consideration. Measuring the NCI at its share of net assets instead (20% × $4,000,000 = $800,000) gives partial goodwill of $1,800,000.

Sources: ACCA: Accounting for goodwill (fair value vs proportionate NCI, deferred consideration examples) · Omni Calculator: Goodwill (purchase price minus net assets example)

Frequently asked questions