Dear Suraj

Your example is step or partial acquisitions. I can analyse your case as follows:

Example
ABC holds a 33% stake in XYZ and consolidates XYZ as a subsidiary. On 20 May 2008 the net identifiable assets of XYZ that were included in the consolidated balance sheet amounted to $50 million. At this date the assets had a fair value of $55 million. On 20 May 2008 ABC purchased a further 37% of the issued shares of XYZ for $22 million.

Under the principles we have just discussed the net assets of XYZ would be revalued to $55 million for consolidation purposes. Therefore, just prior to the purchase the minority interest in XYZ would be $36.85 million ($55 million X 67%). The effect of the share purchase would be to reduce the minority interest to 30% and so it would become $16.50 million. Therefore the reduction in the minority interest is $20.35 million. The group has paid $22 million to achieve this reduction of $20.35 million and so goodwill of $1.65 million would be recognised.

The rationale behind this treatment is that essentially the group has an 70% subsidiary. Therefore, the carrying value of its net identifiable assets in the consolidated financial statements should be based on fair value at the date the subsidiary became an 70% subsidiary. This applies whether the subsidiary was purchased in one transaction or in a series of transactions.

Best Regards

Mac