What's the difference between partial goodwill and full goodwill methods for NCI, and when do you use each?
Westlake Corp acquires 80% of Crestline Inc for $640 million. Crestline's identifiable net assets are worth $700 million at fair value. I've seen two methods for calculating goodwill and the non-controlling interest. One gives a smaller goodwill number. Can someone explain both approaches with the same numbers so I can see the difference clearly?
This is a high-frequency test point because IFRS allows both methods while US GAAP requires full goodwill. Let me compute both side by side.
Given:
- Westlake acquires 80% of Crestline for $640M
- Crestline identifiable net assets at FV: $700M
- Implied total entity value: $640M / 80% = $800M
Full Goodwill Method (Required under US GAAP, Optional under IFRS)
NCI is measured at fair value. Assuming fair value of 20% NCI = $160M (proportionate to implied value):
| Item | Amount |
|---|---|
| Consideration paid (80%) | $640M |
| NCI at fair value (20%) | $160M |
| Less: Identifiable net assets at FV | ($700M) |
| Full Goodwill | $100M |
NCI on balance sheet = $160M (includes NCI's share of goodwill)
Partial Goodwill Method (IFRS Only)
NCI is measured at its proportionate share of identifiable net assets (no goodwill allocated to NCI):
| Item | Amount |
|---|---|
| Consideration paid (80%) | $640M |
| Less: 80% of identifiable net assets | ($560M) |
| Partial Goodwill | $80M |
NCI on balance sheet = 20% x $700M = $140M (no goodwill)
Impact Comparison
| Metric | Full Goodwill | Partial Goodwill | Difference |
|---|---|---|---|
| Total assets | Higher by $20M | Lower | Full > Partial |
| Total equity (NCI) | $160M | $140M | Full > Partial |
| Goodwill | $100M | $80M | Full > Partial |
| ROA | Lower | Higher | Smaller asset base helps |
| Impairment exposure | Higher | Lower | More goodwill to impair |
When NCI FV differs from proportionate share:
In practice, the NCI might not equal a pro-rata share of the implied value because the controlling interest often carries a control premium. If the NCI fair value is only $145M (reflecting a minority discount):
- Full goodwill = $640M + $145M - $700M = $85M
- This is STILL higher than partial goodwill of $80M
Exam tip: If the question specifies IFRS and does not give NCI fair value, they want the partial goodwill method. If they give NCI fair value, they want full goodwill.
For more consolidation practice, explore our question bank.
Master Level II with our CFA Course
107 lessons · 200+ hours· Expert instruction
Related Questions
What exactly is the Capital Market Expectations (CME) framework and why does it matter for asset allocation?
How do business cycle phases affect asset class return expectations?
Can someone explain the Grinold–Kroner model step by step with numbers?
How do you forecast fixed-income returns using the building-blocks approach?
PPP vs Interest Rate Parity for forecasting exchange rates — when do I use which?
Join the Discussion
Ask questions and get expert answers.