How do you calculate goodwill in a business combination under full and partial goodwill methods?

Goodwill in a business combination represents the excess of what the acquirer pays (plus non-controlling interest) over the fair value of identifiable net assets. IFRS allows two methods; US GAAP requires full goodwill only.

Example Setup:

Vanguard Holdings acquires 80% of Summit Technologies. Key data:

• Purchase price for 80%: $16,000,000
• Fair value of Summit's identifiable net assets: $17,500,000
• Fair value of Summit as a whole (enterprise value): $20,000,000
• Book value of Summit's net assets: $14,000,000

Method 1 — Full Goodwill (US GAAP required, IFRS option):

Full goodwill measures NCI at fair value, attributing goodwill to both the parent and minority shareholders.

Fair value of NCI (20%) = 20% x $20,000,000 =$4,000,000

Component	Amount
Purchase price (80%)	$16,000,000
+ Fair value of NCI (20%)	$4,000,000
= Total consideration + NCI	$20,000,000
- FV of identifiable net assets	$17,500,000
= Full Goodwill	$2,500,000

On the consolidated balance sheet:

• Goodwill: $2,500,000
• Non-controlling interest: $4,000,000 (at fair value)

Method 2 — Partial Goodwill (IFRS option only):

Partial goodwill measures NCI at its proportionate share of identifiable net assets, so goodwill only reflects the parent's premium.

NCI at proportionate share = 20% x $17,500,000 =$3,500,000

Component	Amount
Purchase price (80%)	$16,000,000
+ NCI at proportionate FV	$3,500,000
= Total	$19,500,000
- FV of identifiable net assets	$17,500,000
= Partial Goodwill	$2,000,000

On the consolidated balance sheet:

• Goodwill: $2,000,000
• Non-controlling interest: $3,500,000 (at proportionate share of net assets)

Comparison:

Item	Full Goodwill	Partial Goodwill
Goodwill	$2,500,000	$2,000,000
NCI on B/S	$4,000,000	$3,500,000
Total assets	Higher by $500K	Lower by $500K
Impairment exposure	Higher (more goodwill)	Lower

Impairment Implications: Under full goodwill, impairment testing includes the NCI's share of goodwill, which can lead to larger write-downs. Under partial goodwill, only the parent's goodwill is tested.

Exam tip: Always check which method the question specifies. If it says US GAAP, use full goodwill. If IFRS, read carefully for which option is being used. The difference between the two methods equals the NCI's implied share of goodwill.

For more acquisition accounting practice, check our CFA Level II question bank.