entity x acquires an 80 per cent ownership interest in entity y for euro 2 100 on 1 612431

Non-controlling interests measured initially at fair value

Entity X acquires an 80 per cent ownership interest in Entity Y for €2,100 on 1 January 2013. At that date, Entity Y’s identifiable net assets have a fair value of €1,500. Entity X chooses to measure the non-controlling interests at its fair value of €350. Goodwill is €950, which is the aggregate of the consideration transferred and the amount of the non-controlling interests (€2,100 + €350) and the net identifiable assets (€1,500).

(a) the acquired subsidiary is a stand-alone CGU

Entity Y is a CGU but part of the goodwill is allocated to other of Entity X’s CGUs that are expected to benefit from the synergies of the combination. Goodwill of €450 is allocated to the Entity Y CGU and €500 to the other CGUs.

At the end of 2013, the carrying amount of Entity Y’s identifiable assets excluding goodwill has reduced to €1,350 and Entity X determines that the recoverable amount of CGU Y is €1,650.

Of the goodwill impairment loss of €150, €30 (20%) will be allocated to the non-controlling interest because the goodwill is allocated to the controlling interest and non-controlling interest on the same basis as profit or loss.

(b) the acquired subsidiary is part of a larger CGU

Entity Y becomes part of a larger CGU, Z. As before, €500 of the goodwill is allocated to other of Entity X’s CGUs that are expected to benefit from the synergies of the combination. Goodwill of €450 is allocated to Z. Z’s goodwill related to previous business combinations is €800. At the end of 2013, Parent determines that the recoverable amount of the Z CGU is €3,300. The carrying amount of its net assets excluding goodwill is €2,250.

All of the impairment loss of €200 is allocated to the goodwill. As the partially-owned subsidiary forms part of a larger CGU, the goodwill impairment loss must be allocated first to the parts of the cash-generating unit, Z, and then to the controlling and non-controlling interests of Entity Y.

The impairment loss is allocated on the basis of the relative carrying values of the goodwill of the parts before the impairment. Entity Y is allocated 36% of the impairment (450 ÷ 1,250), in this case €72, of which €14.40 (20%) will be allocated to the non-controlling interest.