What is the difference between full goodwill and partial goodwill in business combinations?

Question

AcadiFi · Accepted Answer

When one company acquires a controlling interest in another (but less than 100%), the treatment of **non-controlling interest (NCI)** determines whether you calculate full or partial goodwill.

**Key Difference:**

| Concept | Full Goodwill (IFRS option / US GAAP required) | Partial Goodwill (IFRS option) |
|---|---|---|
| NCI measurement | Fair value of NCI | NCI's share of identifiable net assets |
| Goodwill includes | Parent's + NCI's share | Parent's share only |
| Total assets | Higher | Lower |

**Scenario:** Pinnacle Corp. acquires 80% of Lakewood Industries for $48 million. The fair value of Lakewood's identifiable net assets is $50 million. The fair value of the 20% NCI is estimated at $11.5 million.

```mermaid
flowchart TD
    A["Full Goodwill Method"] --> B["Total FV of Lakewood = $48M + $11.5M = $59.5M"]
    B --> C["Less: FV of Net Assets = $50M"]
    C --> D["Full Goodwill = $9.5M"]
    E["Partial Goodwill Method"] --> F["Parent Consideration = $48M"]
    F --> G["Less: 80% x FV Net Assets = $40M"]
    G --> H["Partial Goodwill = $8M"]
```

**Full Goodwill Calculation:**
Total implied fair value = $48M (parent) + $11.5M (NCI FV) = **$59.5M**
Goodwill = $59.5M - $50M = **$9.5M**
NCI on balance sheet = **$11.5M** (fair value)

**Partial Goodwill Calculation:**
Goodwill = $48M - (80% x $50M) = $48M - $40M = **$8.0M**
NCI on balance sheet = 20% x $50M = **$10.0M** (share of identifiable net assets)

**Consolidated Balance Sheet Comparison:**

| Line Item | Full Goodwill | Partial Goodwill | Difference |
|---|---|---|---|
| Identifiable net assets | $50.0M | $50.0M | $0 |
| Goodwill | $9.5M | $8.0M | $1.5M |
| **Total assets** | **$59.5M** | **$58.0M** | **$1.5M** |
| NCI (equity) | $11.5M | $10.0M | $1.5M |
| Parent equity | $48.0M | $48.0M | $0 |

**Impairment Implications:**
- Full goodwill means **more goodwill** on the balance sheet, so the potential impairment charge is larger
- If goodwill is impaired under full goodwill, the impairment is allocated between parent and NCI proportionally

**Exam Tip:** The CFA Level II exam frequently provides an acquisition scenario and asks you to calculate goodwill under both methods and show the impact on consolidated equity.

For more consolidation practice, explore our CFA Level II question bank.

What is the difference between full goodwill and partial goodwill in business combinations?

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Practice Questions

Concept	Full Goodwill (IFRS option / US GAAP required)	Partial Goodwill (IFRS option)
NCI measurement	Fair value of NCI	NCI's share of identifiable net assets
Goodwill includes	Parent's + NCI's share	Parent's share only
Total assets	Higher	Lower

Line Item	Full Goodwill	Partial Goodwill	Difference
Identifiable net assets	$50.0M	$50.0M	$0
Goodwill	$9.5M	$8.0M	$1.5M
Total assets	$59.5M	$58.0M	$1.5M
NCI (equity)	$11.5M	$10.0M	$1.5M
Parent equity	$48.0M	$48.0M	$0