Goodwill formula Example

Goodwill formula Example

Goodwill formula is (cost of investment + fair value of NCI)- Fair value of net assets.  Fair value of NCI can be calculated by two methods i.e. proportionate of net asset or fair value of NCI by market price of subsidiary shares.

Goodwill Formula Example

LG & Co purchased 80% share of TV & Co for 180,000, fair value of net asset is 200,000 and fair value of non controlling asset is 30,000. Calculate good will under fair value of net asset and fair value of NCI.

Solution

a.    Fair value NCI method

Fair value of the NIC is given therefore the Goodwill can be as under

Cost of investment	180,000
Fair value of NCI	30,000
Total	210,000
Less : Fair value of net asset	(200,000)
Goodwill	10,000

b.    Net Asset method

Cost of investment	180,000
Fair value of NCI as proportion net asset ( 20% x 200,000)	40,000
Total	220,000
Less : Fair value of net asset	(200,000)
Goodwill	20,000