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Amortization of Goodwill after method change

Hi all,

Need some help.

It is not really clear to me how does BCS take into account (equity-method)goodwill, and further more - amortization of goodwill, in/after Method Change activity.

Business scenario

Step 1.

Company "A" (equity - 1000 monetary units) is consolidated using equity method (25%) since Q4/2005 (parent company invested 4000 monetary units).

Step 2.

At the end of Q4/2006 method change takes place, equity to purchase (25% --> 51%).

Step 3.

At the end Q4/2007 parent company increases its ownership in company "A" (51% --> 60%).

Customizing

- COI method "METH1" utilizes equity method as an accounting technique. Acquisitions - group shares. Extraordinary amortization of goodwill

- COI method "METH2" utilizes purchase method as an accounting technique. Acquisitions - group shares. Ordinary amortization of goodwill, starting next Q, during 20 years.

Expected behavior

Step 1.

Equity-method goodwill arises (3750 monetary units).

Step 2.

"New" goodwill arises (3910 monetary units) from 26% (25% --> 51%).

Method changes from "METH1" to "METH2".

Next Q (Q1/2007) goodwill (3750 + 3910) is amortized - 95,75 (over 20 years, per Q).

Step 3.

"New" goodwill arises from 9% (51% --> 60%) and amortized next Q.

"Previous" is amortized.

Reality bites...

Step 1.

Equity-method goodwill arises (3750 monetary units).

Step 2.

"New" goodwill arises (3910 monetary units) from 26% (25% --> 51%).

Method changes from "METH1" to "METH2".

Next Q (Q1/2007) goodwill remains the same - goowdwill is not amortized.

Step 3.

"New" goodwill arises from 9% (51% --> 60%).

Only the newly arised goodwill (9%) is amortized next Q.

"Previous" is still not amortized.

Is it "standard" behavior?

What causes the difference in Steps 2 and 3?

Thanks in advance.

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1 Answer

  • Posted on Mar 22, 2009 at 04:38 PM

    Hello Anton,

    It's a complicated question that might be answered, IMHO, only by people who experienced the situation. Or by those who make some experiments in the system. Looks like there is nobody who have or did this. Sorry!

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