For the purpose of measuring non-controlling interest at fair value, it may be possible to

determine the acquisition-date fair value on the basis of active market prices of the equity

shares not held by the acquirer. When the market price is not available, the acquirer should

estimate the implied fair value of the non-controlling interest using other valuation techniques.

The fair value of the non-controlling interest on the date of acquisition should not be less than

the NCI percentage of the fair value of the net assets of the subsidiary. If this is the case the

NCI should be raised to the percentage of the fair value of the net assets of the subsidiary.

Goodwill or Gain on Acquisition

The principal problem in the consolidation process on the date of acquisition is the

measurement of goodwill or gain on acquisition when there is a non-controlling interest (NCI).

IFRS 3 (2008) prescribes the following procedures:

Goodwill is measured as the excess of:

• The aggregate of (i) the acquisition date fair value of the consideration given, (ii) the

amount of NCI, and (iii) the fair value of the parent’s previously held interest in the

subsidiary; over

• The net of the acquisition-date value of the net assets acquired.

Examples 9-1

P Company acquired S Company in two stages as follows:

 • In 2012, P Company acquired a 30% equity interest for cash consideration of P160,000

when the fair value of S Company’s identifiable net assets was P500,000.

• In 2013, P Company acquired a further 50% equity interest for cash consideration of

P375,000. On the acquisition date, the fair value of S Company’s identifiable net assets

was P600,000. The fair value of P Company’s original 30% holding was P200,000 and the

fair value of the 20% non-controlling interest is assessed as P140,000. Using the two

options, goodwill is calculated as follows:

NCI @ % of net NCI @

assets fair value

Fair value of consideration P375,000 P375,000 Non-controlling interests 120,000

140,000

Previously-held interest

Total
200,000 200,000
Fair value of identifiable net assets 600,000
695,000 615,000
600,000
Goodwill P95,000 P115,000

On the other hand, gain on acquisition (bargain purchase) is recognized when the fair value of

identifiable net assets is more than the aggregate of the consideration given, the noncontrolling

interests and the fair value of any previously-held interest in the acquiree. The gain is to be

recognized only by the acquirer (Parent).

Determination and Allocation of Excess Schedule