1 Groups and consolidation: an overview

 IMPORTANT 
The calculation of goodwill must be based on the 
fair value
of the consideration transferred. For cash, 
this is straightforward; it is simply the amount of cash paid. But what about shares? The fair value of 
shares is their 
market price
on the 
date of acquisition
. 
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PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
428
 
2.4.1 Example: consideration in the form of shares 
P Co has acquired all of the share capital of S Co (12,000 $1 shares) by issuing 5 of its own $1 shares 
for every 4 shares in S Co. The market value of P Co's shares was $6 at the date of acquisition. The fair 
value of the net assets of S Co at the date of acquisition was $75,000.
The fair value of the consideration transferred for the acquisition is: 
$ 
12,000 

5/4 

$6 
90,000 
This is credited to the share capital and share premium of P Co as follows.
 
 Dr 
 Cr 
$
$
Investment in subsidiary 
90,000 
Share capital ($12,000 

5/4) 
15,000 
Share premium ($12,000 

5/4 

5) 
75,000 
Goodwill on acquisition is calculated in the usual way as follows. 
$
Fair value of consideration transferred 
90,000 
Less net acquisition-date fair value of identifiable assets acquired and liabilities assumed
(75,000) 
Goodwill 
15,000 
 
3
Non-controlling interests 
The non-controlling interest (NCI) shows the extent to which net assets controlled by the group are 
owned by other parties.
Let's recap on the general principles of consolidation. 

Consolidation means adding together. 

Consolidation means cancellation of items internal to the group. 

Consolidate as if you owned everything and then show the extent to which you do not. 
It is this third point with which we are now concerned.
Following the above principle, the total assets and liabilities of subsidiary companies are included in the 
consolidated statement of financial position, even in the case of subsidiaries which are only partly 
owned, by which we mean where the parent doesn't own 100% of the share capital of the subsidiary. A 
proportion of the net assets of such subsidiaries in fact belongs to investors from outside the group which 
we call the