bobby (Employee) (86 Points)
20 August 2011HI, my question is--
Company A has Goodwill(on acquisition) denominated in USD =1000, and company amortises usd =100 each year for 10 years so my query is(In first year closing rate was 45 and 2nd year it was 47)
a) does it not to be reinstated at each reporting date as per closing exchange rate.
b)What will be the amortisation amount in INR each of the first two year
CA Saiyum khan
(Practicing CA)
(690 Points)
Replied 21 August 2011
There is no pay out for good will in each year. So amortisation wud be at the rate it has been acquired.
sri rama krishna mallela
(Junior Manager F&A)
(204 Points)
Replied 22 August 2011
goodwill is a non monetory item.
incase of non monetory items the reporting should be at the exchange rate as on transaction date or at fair valuation date. and fair valuation will not apply to goodwill.
so the good will should be shown at rate previling on transaction date that is date of acquisition.
since it is showing at a rate as on acuisition the apportionment also will be at that rate.
Yogesh
(Manager)
(50 Points)
Replied 23 August 2011
Dear all, Goodwill is considered to be in books of the acquired company. Therefore at the time of consolidation, in case of non integral operation (which typically includes all independent entities), all the assets and liabilities including goodwill will be restated as at closing exchange rate. Here, the fundamentals of monetary and non-monetary does not work. Therefore goodwill needs to be restated as at balance sheet date in case of non integral foreign operation under Indian GAAP.
Further, the goodwill can be of two types, one at arise during consolidation and second at the time of amalgamation. Goodwill arise at the time of consolidation need not to be amortised and the same needs to be tested for impairment. While, goodwill at the time of amalgamation is amortised generally over five year on straight line basis.
Hope it clarifies.
Regards, Yogesh
sri rama krishna mallela
(Junior Manager F&A)
(204 Points)
Replied 23 August 2011
Here in the question it is clear that the company is amortising the goodwill. So it is not the goodwill in the case of consollidation. And the point of intigral or non intigral will not arise. coming to amalgamation case. goddwill arise only if it is amalagamation in the nature of purchase.
I think the goodwill mentioned in the question is araising in amalgamation in the nature of purchase. According to AS 14 that goodwill should be ammortised for a period of its useful life. since the useful life is not posible to find with certainity for good will it can be ammortised for a period not exeeding five years.
But the Question is at what exchange rate the unammortised goodwill should be shown in balance sheet. and the amount of ammortised goodwill in p&l a/c.
for which the above given points of mine will be applicable.
I think i am clear if not u r welcome to correct.
bobby
(Employee)
(86 Points)
Replied 23 August 2011
HI Srik , what do you mean by goodwill from consolidation, even the goodwill generated in the case of amalgamation(Purchase) also is in the nature of consolidation . Please explain in detail
sri rama krishna mallela
(Junior Manager F&A)
(204 Points)
Replied 24 August 2011
Goodwill in consolidation
Goodwill in consolidation means the excess of cost to the parent company of its investment in a subsidiary over the parent portion of equity of the subsidiary at the date on which investment in the subsidiary is made. This should be recognised as Goodwill in the consolidated financial statement of the parent company.
I want to explain this with example for more clarity
Company X has acquired 51% of the shares of company Y. So X will be parent company and Y will be subsidiary company. If that shares are acquired for RS. 10000 on 31.3.11, on which date the equity in the books of company is RS, 15000. Here euity means both sharecapital and resurves on the date of acuisition.
Then at the time of preparartion of Consolidated Financia Statement the parent company X shoud show good will amount of RS.
This can be assertined as follows
amount paid for shares Rs. 10000
less euity portion of parent in sbusidiary Rs. 7650 (15000*51%)
goodwill will be Rs. 2350
And this will be shown in the Consolidated Financial Statements only. And not in the Stand Alone Financial Statements of the Parent Company.
Goodwill in amalgamation
Goodwill in amalgamation will arise only in tha case of amalgamation in the nature of purchase. This is because the assets and liabilities will be restated to their fair value and actual liability value. This good will will be shown in the books of amalgamated company. Where as the goodwill in case of consoidation will be shown in the CFS only. The goodwill in amalgamation will come into CFS also if the acquiring co. is having saubsidiary.
And finally Good will in consolidation will arise in the case of one company acquire the shares of another company and become the holding company in which case both holding and subsidiary co.s are in existence. Goodwill in amalgamation arise when one co. aquires another company and that other co. ceased to exists.
Hope this will clarify.
If not clear U r Wel come for any doubts.
Jateen
(Manager)
(21 Points)
Replied 15 March 2012
| Originally posted by : sri rama krishna mallela | ||
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Goodwill in consolidation Goodwill in consolidation means the excess of cost to the parent company of its investment in a subsidiary over the parent portion of equity of the subsidiary at the date on which investment in the subsidiary is made. This should be recognised as Goodwill in the consolidated financial statement of the parent company. I want to explain this with example for more clarity Company X has acquired 51% of the shares of company Y. So X will be parent company and Y will be subsidiary company. If that shares are acquired for RS. 10000 on 31.3.11, on which date the equity in the books of company is RS, 15000. Here euity means both sharecapital and resurves on the date of acuisition. Then at the time of preparartion of Consolidated Financia Statement the parent company X shoud show good will amount of RS. This can be assertined as follows amount paid for shares Rs. 10000 less euity portion of parent in sbusidiary Rs. 7650 (15000*51%) goodwill will be Rs. 2350 And this will be shown in the Consolidated Financial Statements only. And not in the Stand Alone Financial Statements of the Parent Company. Goodwill in amalgamation Goodwill in amalgamation will arise only in tha case of amalgamation in the nature of purchase. This is because the assets and liabilities will be restated to their fair value and actual liability value. This good will will be shown in the books of amalgamated company. Where as the goodwill in case of consoidation will be shown in the CFS only. The goodwill in amalgamation will come into CFS also if the acquiring co. is having saubsidiary. And finally Good will in consolidation will arise in the case of one company acquire the shares of another company and become the holding company in which case both holding and subsidiary co.s are in existence. Goodwill in amalgamation arise when one co. aquires another company and that other co. ceased to exists. Hope this will clarify. If not clear U r Wel come for any doubts. |
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Thanks Sri for clarification with example.. i have a question here.. .. suppose co. X acquired 100% of co. Y for excess than its net worth (it will be 5000 Goodwill on consolidation as per your example, in conso books, not standalone books)...now after 1 year co. X plans to merge with co. Y as per Purchase method.. but assets/ liab at book values... whether there will be any goodwill? or excess investment value over net worth will be written off to Reserves (which was prior to merger Goodwill on conso)...
CA Sachin Rastogi
(Audit/IFRS Manager)
(338 Points)
Replied 16 March 2012
Dear all
As per the converged AS which will replace the current accounting standard in India - Goodwill arising on business combination is not amortised rather it is tested for impairment annually or at such period of time whenever there is an indication of impairment.
If there is an acquisition of a foreign subsidiary then goodwill arising on acquisition (Purchase consideration less fair value of identifiable assets and liabilities) will be restated at each reporting date at the closing exchange rate on that reporting date. Thus on consolidation at each reporting date goodwill will be retranslated and will result in exchange difference which will be captured under translation reserve.
The above accounting treatment is currently in place under International Accounting standards.
CAclubindia
