 Hello and welcome to the session. This is Professor Farhad. In this session, we're going to be looking at IFRS 10 and IFRS 3, which deals with business combination, consolidation, goodwill, and non-controlling interests. This topic is covered in an international accounting course and covered on the CPA exam. You need to know the difference between how we impair goodwill for GAP as well as IFRS. As always, I would like to remind you, my listeners, to connect with me on LinkedIn. If you don't have a LinkedIn account, please create one. It's very important for your professional image. YouTube is where I house all my lectures. I have over 1,400 accounting, tax, auditing lectures. If you're benefiting from my lecture, it means somebody else might benefit as well. Please like the lecture, share them, put them in playlists, let the world know about them. This is my Instagram account. This is my Facebook account. I do have some premium account on Gumroad and this is my website. Let's talk about the financial statements of a business combination. What is a business combination? A business combination sometimes referred to as M&A, mergers, and acquisition. It's when one company buys another company. The question will be, why do one company buy another company? Many reasons. There are endless reasons. To enter a new market, for example, I'll give you a simple example, Microsoft. Microsoft wanted to enter the social media world, the social media. So what they did is this. Actually, I didn't think about this. For example, you have Microsoft wanted to enter the social media world. Well, one way to do it is to create their own social media. Well, they didn't do so. What they did is they bought LinkedIn. So now LinkedIn is owned by Microsoft. So this is basically a business combination. So you want to go into a new market and you don't want to start your own company. So you buy an existing company. You build economies of scale. What is economies of scale? When you are producing more, you can combine effort. You can lower cost. That's another way to do it. Or gain access to critical resources such as raw material or technological know-how. There are other reasons as well, but those are the main reasons. Now, you have to understand business combination is a great deal in the real world. The value of business combination was $4.0 trillion in 2015, which is half of it was outside the U.S. 2.3 give or take half and half of it in the U.S. So businesses can combine their operation in a different of ways. How can they do it? Well, the company being acquired, the company being bought in a business combination, can be legally dissolved as a separate entity. So basically the company that you are buying, it will go away. You just kind of eliminate it. Either the acquired company goes out of business and is merged into the acquiring company. So they either go out of business or they merge them with the acquired company. That's one way to acquire a company. Or both company, both parties are legally dissolved and a new company is formed. So you have company A, bought company B, and now they have company C. So basically they created a new company. Or what could happen? One company could gain control over another company by acquiring sufficient number of voting shares, but the acquired company continue as a separate legal existence. So another way to buy a company is to buy their shares. Once you buy their shares, then the majority of their shares, which is more than 50%, then you are in control, but the company stays into existence. In either case, the acquired is the parent company. The parent company is the company that's buying. Buying who? Buying the equiree. The equiree is called the subsidiary. So you have to understand those terminology. We have the parent company and we have the sub. The parent company is the one that's buying the sub. I always give this example. For example, the gap store is the parent company of Old Navy and the parent company of Banana Republic. And I believe they own another third company. I can't think of its name. So the parent company is the company that owns the subsidiary. So the Old Navy is a subsidiary to the gap, to the gap store. So you have to have an acquirer, which is the buyer, and a subsidiary, which is the company that's being bought. Now keep in mind that both companies continue to operate as a separate legal entity. For example, the gap store, they have their own stores, they have their own operation. And the Old Navy store, they have their own operation as well as the Banana Republic. However, because of the parent company controls the subsidiary, accountant worldwide generally require that the subsidiary financial statements must be consolidated with those of the parents. Well, although they're operating separately, they have their separate cash management system. They have their own separate stores. They have their own separate internal control. They're just two separate entities. But when the Old Navy report their financial statements, they get consolidated, combined with the gap store. When the Banana Republic prepared their financial statements, they get combined with the gap store. The term in the international arena is called a group. A group is defined as a parent together with its various subsidiary. Group accounting is a term commonly used outside the U.S. In the U.S. we use the word consolidation. Basically the same concept. Group accounting is when you have a parent company that's combining their accounting with the subsidiaries, with the equiries. So the requirement that parent company consolidate, that's a requirement. All their subsidiaries over which they have exercise control. I want to highlight control because that term is very important. It's going to come important. So what does that mean? It means if you have a control over another company, you have to consolidate that company. Now, what do we mean by control? We're going to define a little bit more control as much as we can. We're going to have a quantitative, and we're going to have qualitative factor. The quantitative factor is going to be straightforward, but we have to be careful. Sometime we might have control without the quantitative factor. So IFRS, this is what we're going to be talking about today, is the primary, which part of today, is the primary international standard governing consolidation and its scope. According to the standard control exists when each of the following conditions are present. When each of the following conditions are present, what are they? First, the investor has power. What is power? Well, it means you have 50% or more of the voting shares over the investing. So think about it. If you own more than 50% of a particular company, you control them. You have more than half of the shares. You can do whatever you want to. You are the majority. The investor has rights to participate in or exposure to the downsize risk from the variable return from its investments with the investing. So simply put, variable return means whatever happened to that company, it's going to affect you somehow. If your cash flow goes up, somehow you are affected. If they incur losses, somehow you are affected. You have a variable interest in that company, a variable return. It's going to vary. Your return will vary up and down with that investing, with that subsidiary. And the investor has the ability to use its power over the investing to affect those returns. And basically, if you can use your power, whatever power you have, and to tell the investor what to do to influence the return, then you have power over the investing. But again, power generally is you have 50% or more. This is basically a quantitative factor. If you have more than 50%, clear cut you are in charge. You need to consolidate. Now let's talk a little bit more about variable return. For simplicity, think of variable return as the varying amount of profit or cash flow to which the parent company may lay claim by virtue of its investments in the subsidiary. So how is your investment affected by the subsidiaries? It's going to vary. That's what the variable return is. So we say the parent might have a variable economic interest or VEI. Now, if you're interested more in VEI about this topic, go to my advanced accounting course. And I have a whole lecture about VEI because of a company called Enron. Enron had many VEI and they did not consolidate them. So if you're interested, you can go there. But this is all mean by variable return. And the reason we use VEI or variable return, it's an overarching concept that can be applied to a wide variety of direct or indirect or implicit control. So basically what we want to do, we want to make sure we capture all sorts of connection between the parent and the subsidiary. Sometimes the connection is direct. They have direct shares in the company. Sometimes they have an indirect ownership. They own someone and that someone owns the subsidiary. So you own the subsidiary but not directly and directly. So that's why we have to be careful. That's why in accounting we use variable return. So that's the issue. So let's talk a little bit more about variable economic interest. So what is the issue with the 50% plus? If it's 50% plus, it's pretty clear cut. But what happened in some circumstances, there's a variety of legal structure and local business convention allow companies to gain effective control over the subsidiaries at lower share ownership threshold. That could be a problem. Also could be another problem is somehow indirectly you own the company but you don't consolidate. I will talk about Enron real very briefly just to kind of show you why we emphasize the word control and why we emphasize the word variable economic interest when it comes to consolidation. Let's talk about Enron. Enron is right here. This is Enron, the main company, Enron. Now Enron needed money. Enron needed money to operate. So they were not doing good. They needed money. So what they would do? Enron would create those subsidiaries. Sub. Sub 1. Sub 2. And here's what would happen. This subsidiary will go out to the bank and will borrow, let's assume, $5 million. Okay? So this subsidiary, subsidiary 2, will debit cash $5 million and they will credit notes payable $5 million. Now this subsidiary, the bank's going to ask the subsidiary, well, what do you do for business? They would say, well, we're part of Enron. The bank will go to Enron and say, yes, this is part of my subsidiary. Lend them the money. I will guarantee their loan. Okay? So this subsidiary borrowed $5 million. Then what happened is this. And this is one of the things that they did. They did many things. And this subsidiary would hire Enron for some, in quote, consulting work. So Enron will do some management or consulting work to the subsidiary and they will charge the subsidiary $5 million. So Enron will debit cash $5 million and they will credit revenue $5 million. So basically the money that the subsidiary, the subsidiary borrowed from the bank became revenue on Enron Box. Now, the story is not done yet because we still have one problem. The problem is the sub is part of Enron. So somehow Enron find a way to not consolidate sub too. So they found legal ways around it. Now, those legal ways don't exist anymore. I'm not going to cover them what they were. But if you're interested, go to my VEI lecture and you just type variable economic interest or go to my advanced accounting. So this is the problem with control. We want to make sure that as long as the parent company, this is the parent company Enron, they have control over the subsidiary. Well, the subsidiary serve to exist Enron. So Enron is the controlling party. But somehow they found a legal way to not consolidate. Therefore, they showed the $5 million as revenue rather than the $5 million as that and they did it in many other places. And what happens sometimes, for example, sub too would borrow money. Then they will buy assets from Enron, assets that were no good, investments that were no good. And Enron would sell them those investments at a profit to book a profit. So this is what we meant by this is the problem with control. We have to make sure we have control. Another example will be Spain's Banco Balboa Bank that bought a bank in Turkey and they only owned 39% in terms of share, around 39%, which is less than 50%. But in reality, they control the bank and some other measures they were able to elect the board of directors that they wanted. So they did have control without the 50%. That's why the percentage is important, but sometimes we have to see who really controls that entity. If you really control that entity, then you need to consolidate that entity. So what do we look for? Other criteria that we look for? The ability to direct the investors and to enter into an agreement that benefit the investor. Well, if you can't tell them, go into this agreement, buy this thing from me because it's in my favor that you buy it. You're controlling the entity. Therefore, it's part of your company. You need to consolidate. If you have the ability to direct operating activities such as selling and purchasing goods and services, you are in control. If you can tell them what to sell and what to buy, then you're in control of the company. If you have the ability to direct your investments such as R&D and capital spending, CAPACs, then you're in control. If you have the ability to determine the investor's financial structure, if you can tell them you should have 30% that, 70% equity, 30% equity, 70% that, then guess what? You're in control of the company. Your parent is in control of the subsidiary. If the investor's right to obtain direct control of the investors by additional voting shares at a later date or in response to a certain triggering event, then you might be in control of the company. So we don't only look at the percentage at 39% to see if there's any control. We have to look at other factors. If somehow we control the company, then guess what? We have to consolidate. Now, how do we consolidate? We use the acquisition method. It's easy. It used to be a little bit more complicated because we used to have more than one method. So the acquisition method, now we use IFRS 3 in 2004, brought the international rules in line with the US standard. So now, whether it's US or international, we use the acquisition method, which is good. It's easy. It's one method. So all combination must be accounted for using the acquisition method. This method required the accountant to designate an acquirer and one or more acquirers. So there's a parent and a subsidiary. An acquirer is the company that's buying the equiries. Microsoft bought LinkedIn. So Microsoft is the acquirer and LinkedIn is the equary. LinkedIn is the equary. The accountant to record the equaries identifiable assets and liability in the post acquisition consolidated financial statements at fair value. This is important. When Microsoft bought LinkedIn, whatever they bought in terms of assets and liabilities, everything is reported at fair market value. Fair market value. Now, this is easy. When we buy something, we have to report everything at fair market value. They're identifiable assets. So if they have cash, well, if they have receivable, inventory, property, plant and equipment, any asset, intangibles, patent, so on and so forth, it's reported at fair value. Now, what happened if we pay too much for the company? And we cannot identify why we bought too much. Then what we have now is we have goodwill. So what is goodwill? Goodwill is the premium amount that you paid above and beyond those identifiable assets. So how is it measured? Let's take a look at how is it measured first. Goodwill is measured. The difference between A, which is the consideration paid, let's assume cash paid, plus non-controlling interest plus NCI. Now, what is NCI? We're going to see what's NCI in a moment. Think of cash. How much you paid cash versus the fair value of the net asset of the company? Let me give you a quick example. Let's assume company is buying company B. Company, rather than A and B, let's assume company one and company two. So company one is buying company two. Company two assets, they have fair market value of 300,000, liabilities of also fair market value of their liabilities is 100,000. And this is fair market value. Assets 300,000 and liabilities 200,000. Well, what we would say is they have a net asset, net assets of 200,000. Let's assume you paid for them and you paid 250,000. You came in and said, I'm going to pay 250,000. Well, you paid $50,000 more than what the company is worth. Well, and guess what? You paid that extra and you did not pay for any specific particular identifiable asset. So this $50,000, you cannot allocate. You cannot say this $50,000 is for a patent or for some intangible asset. You cannot identify, identify. That's why identification is important. You cannot identify which assets you bought. You just wanted to pay more. Maybe because you like the company. I don't know. Maybe because of its location. Something you cannot identify. Well, that extra above and beyond the net asset that you cannot identify with anything is called goodwill. So when A exceeds B, when you pay more than what the fair market value of the asset, you would recognize it as an asset called the goodwill. If you pay less, if you happen to pay less, let us assume it's worth 200,000. You paid 170,000. Guess what? Good for you. You have a bargain purchase. Then you have a gain. In this situation, you have a gain. And we'll work an example. Let me show you an example how this work. So this is a real example. The fair value of Lavage, which is a French company, on the date of the acquisition was 35 million. The fair value of their liabilities were 24.7 million. So the fair value of their net asset is 10.2 million. Now, here comes the Swiss company, Holsen, and they bought them and they paid for them 19.4 million, plus non-controlling interest. Now, what is this non-controlling interest? Will we mention a non-controlling interest? Non-controlling interest, when you don't purchase 100% of the company, let's assume they purchase only 90%. Well, guess what? If they purchase 90%, it means 10%, they don't control because they only bought 90% of the company. That 9% is represented by non-controlling interest. So, what you paid, the Swiss company paid 19 million, plus the value of the non-controlling interest. Now, how do we come up with the value of the non-controlling interest? Just wait a minute. We'll get there. Minus less, the fair value of the net asset will give us 11.6. So the Swiss company paid 11.6 million more, or billion, I believe, more than what the French company is worth. So after they identify all their assets, after they identify all their liabilities at fair market value, they paid extra 11 million. Well, that extra, we cannot identify with anything. It's called goodwill. Now, why did we pay this? We paid premium. There's a reason. There must be a reason why we paid this. Maybe it's their employee, the track of their management tracker, their employee management reputation, location, connection to the government, whatever it is. We don't know what it is, but we don't know. In some time, for no reason. We went into a bidding frenzy with another company, and we kept increasing and increasing our crisis, and this is why we have a goodwill. There's no particular reason. So non-controlling interest, let's talk about non-controlling interest, or NCI represent the percentage of the acquirer shares that the acquirer did not purchase. And here we said that's a sum at 10%. US GAAP required that NCI be measured at fair value at the date of the acquisition, which include the NCI's shares of goodwill. We'll see that in a moment. We'll see how does it work. In contrast, IFRS allows the non-controlling interest to be measured in two ways, either the fair value, like US GAAP, or proportionate method. So the fair value is the same as US GAAP. And if you're interested in US GAAP, go to my intermediate accounting chapter, either 12 or 13, and you can view more about this topic, or the proportionate share method, which is basically the IFRS method. Okay? The difference between those two methods is important to understand, because companies reporting under IFRS commonly choose the proportionate share method. So usually under IFRS, they use the proportionate share method, decision that can result in substantially lower valuation be placed on goodwill. So they'll have less goodwill when you use the proportionate share method. You will see an example. In the example above Holtson, the Swiss company chose the proportionate share method. So when they bought Lavage, they used the proportionate share method. Now, the best way to illustrate this is to actually work an example. So let's take a look at this example. Suppose that George company acquired 90% of Chris's company, and they paid 360,000. So this is how much they paid. Now, when you pay for the company, you have to know what are you paying for? What's the fair market value of the asset and the fair value of the liabilities? The fair value of the identifiable asset, 320. So they identified all the asset and their fair value is 320. Now, some of those identifiable asset may not be on the books, but they could be intangibles pattern that Chris's company did not record on the books. But nevertheless, we can identify them. And the liability assumed by George in this business combination is 40,000. The liabilities are 40,000. So the net asset is how much? The net asset is 280. The difference between fair market value of the asset and the fair market value of the liabilities. If George chooses to measure NCI using the proportionate share method. Now, how would they do it if they use the proportionate shares method? It records goodwill only for its controlling interest. Now, what is its controlling interest? Well, they only control 90%. Let's take a look at it. Well, 320 minus 40 equal to 280. This is the net asset. Now, of this 280, 10% is not ours. So 28,000 is not ours. What's ours is 90%. What's 90%? 90% is 252. So the fair value of George's controlling interest not identifiable asset is 90% of the net asset. The net asset is to 80. 90% of 280 is to 52. Now, remember the NCI interest is 28,000. Remember, we paid 360,000. This is how much we paid minus 252. So the goodwill is 108. We paid 360,000 and what we bought, we bought 252,000. 90% of the fair value of the identifiable asset and net asset, which is fair value of assets minus the fair value of the liability. So this is the proportionate share method. So our goodwill is 108. Let's take a look at the explanation to see how we computed the goodwill. So net identifiable asset 280 times 10%, which is the non-controlling interest. The non-controlled interest is 28,000. Consideration transfers is 380 plus non-controlling interest How did we get the non-controlling interest? We computed above 280 times 10%. This is using the proportionate share method. Remember, we have two alternatives. This is alternative one. So copy these numbers down. You're going to see them again. So 388 minus 280 will give us goodwill of 108. So the ratio transfer plus NCI minus fair value of net identifiable asset. So this is the proportionate share method. Let's look at the fair value method, which is the US cap, the fair value method. It's the accountant must appraise the NCI fair value date on the acquisition date and use this appraisal to estimate the size of the premium that a hypothetical buyer would pay for the remaining 10%. So now what we say is, if we bought 90% of the company, how much is the company worth 100%? So for simplicity, let's take a look at this example. If we paid 360,000 for 90% of the company, it means the company is worth 400,000. How is it worth 400,000? Well, 360 divided by 0.9 is 400,000. So now what we did is we find the value of the company. If we paid 360 for 90%, it means the remaining 10% equal to 40,000. Now, how do I do this computation? Take what you paid divided by the percentage that you bought. So the full value of the company, this is the full value. So if you want to buy the company 100%, based on the value that you paid 360,90%, you've paid 400,000. Hopefully, this is pretty straightforward. This is the full value. If you watch sharp tanks that show on CNBC, that's how they value a company. They will take, you know, you ask them, you know, let's assume you go to those sharp tanks and he said, pay me 300,000. I'm going to give you 25% of my company. Well, the first thing they do is they would say, okay, I'm paying you 300,000, divided by 0.25, your company must be worth 1.2 million. Now justify for me why your company is worth 1.2 million. If I'm paying 300,000, 425%. Same concept here. I'm paying 360, 490%. The whole company is worth 400,000. Now under these circumstances, the fair value of NCI would be appraised at 40,000. So NCI now, what's NCI? It's the amount that we did not control. The amount that we did not control is 40,000. Now the goodwill attributed the non-controlling interest. Now the goodwill is 12,000, which is 40,000 minus 10% of 280. What is 280? Well, 280 is 320 minus 40. The fair value of the asset minus the fair value of the liabilities. So the goodwill attributed to the NCI. Now we have goodwill for the NCI is 12,000. It has to be attributed to the NCI. So overall acquisition of Chris would result in a goodwill of 120. 108 of that 120 attributed to the controlling interest and 12,000 contributed to the NCI. Let's take a look at the picture again just to see what it looks like. So we said 400,000 times 10%. This is default. This is the NCI interest. Consideration received is 360 plus 40,000 is 400,000. 400,000 minus 280 is 120. So this is the 120. This is the goodwill. Of this goodwill, 10% goes to NCI and 90% goes to the controlling interest. So this is going to be 12,000. And this is going to be 108. Now let's take a look at when you buy a company at a bargain purchase. Bargain purchase means what? It means you pay less than the fair market value of the net asset. You pay less than the fair market value of the net asset. Assume the same fact except that you paid 240,000 for 90% of the company. Let's take a look at this and see how this worked. Assume the controlling interest is measured using the proportionate share method. So basically, consideration received is 240. Non-controlling interest is 28. So the subtotal is 268 minus the fair value of the net asset 280. You bought, you purchased something for 268. That's on the books, not on the books, fair market value of it. So you paid 268 for something that's worth 280. Guess what? You have a gain on the bargain purchase. You made a profit here. You made a gain. Now we have to remember one more time. Goodwill, what is goodwill? It reflects the acquirer's willingness to pay a premium over the appraised value of the acquirer's identifiable net asset. So goodwill is what you think the company is worth way above and beyond. And this is the most controversial asset recognized in an M&A deal because this is what they fight about. This is what they fight about. Why paying extra more than what you are worth at fair market value? Now here what's going to happen in the real world? Emotions, egos, play a role. For example, if you were working for that company and now you're working with the other company, if you're a top manager, you want to take them over. So you're willing to pay more. Or you go into a bidding frenzy with another competitor. You and another competitor bidding and this happens a lot when we have pharmaceutical companies. So what happens is the prices keep on going higher and higher and as the prices go higher, the goodwill is larger. Usually the companies that justify this, they say there's going to be a synergy. We can cut the cost once we bought them. That's why we're paying extra. But what happens is academic research or research post acquisition shows that most of the time companies overpay in many situations. They overpay. Now this is just a little bit of an overview. Now the good news is this, both IFRS and USGAP, it says no amortization for goodwill. So simply put, what does that mean? That means goodwill is considered to have indefinite, unlimited life. So therefore we don't amortize it. Well, guess what? If we don't amortize it, we have to do something else. We have to test it for impairment annually. We have to test it. We must test it annually because we don't amortize it. So now we're going to look at IFRS 3. IFRS 3, impairment testing of goodwill is performed at the level of the cash generating unit. So what they do, they select the unit that they are working with to test goodwill, and they call it the cash generating unit. So how is that defined? It's CGU. It's defined as the smallest group of asset that generate cash. Info that are largely independent from the cash inflow from other units. So basically we're looking at the company from subunits perspective. For example, the Swiss company Halsam allocated goodwill recognizing its acquisition to various geographical location with the largest assigned to the operation in North America is cash generating unit. Nigeria is a cash generating unit. Nigeria is a cash generating unit. And France obviously is a cash generating unit. I say obviously because Navarre was a French company. So they must have their own operation, main operation in France. So this is all made by this. So how do we actually test goodwill impairment? Well, we have to compare the carrying value of the entire cash generation unit, including goodwill attributed to that unit to its recoverable amount. So we're looking at the book value compared to the recoverable amount. Again, how do we measure the recoverable amount? The recoverable amount is the higher of the CGU, the cash generating unit, value and use. Okay, which is the discounted cash flow or the fair value less cost to sell or the higher of these two. How much would you sell it? Minus cost to sell. The higher of these two will be the recoverable amount and you compare this to the carrying amount including the goodwill attributed that carrying amount. Now under US gap, they don't use the cash generating unit. They call it the reporting unit. A little bit differently than the international standard. Again, if you are interested in this, go to my intermediate accounting, okay? So the impairment loss on the CGU is the amount by which the carrying amount, including goodwill, is higher than the recoverable amount. If your book value is higher than your recoverable amount, the difference is goodwill. And what do we do with that difference? Once we have a loss, we'll start to take goodwill out, okay? If controlling interest was originally measured, let's look at this statement first. An impairment loss identified at the CGU level is first applied against goodwill. So once we find we have a loss, the loss goes against goodwill until goodwill goes down to zero. Once goodwill is eliminated, any remaining impairment is allocated to the other asset on a pro-rata basis based on the relative carrying value. Then we'll take the remaining loss from the write down and we allocate them on a pro-rata basis. If non-controlling interest was originally measured at the proportionate share method, which is alternative one, then the carrying value of the entire CGU must be increased by the amount of the goodwill attributed. Don't worry, we're going to work an example to show you what does that mean, okay? Let's go back to George's example. Let's assume George's company, no, let's not assume anything. We should know that they must conduct an impairment test of the goodwill related to the acquisition of Chris. Remember George acquired Chris earlier. The assets of Chris are the smallest group of assets that generate cash flow. So Chris's assets, that's the CGU. They are independent, they have independent cash flow from other unit. The goodwill related to the acquisition will be tested by comparing Chris carrying amount to its recoverable amount. So then look at the carrying amount at the recoverable amount and let's take a look at the data that we are giving. So let's assume the following. The fair value is 280. Cost the sell is 30. So 280 minus 30 is 250. And present value of future cash flow is 270, which is the value in use. Now, those are the recoverable amount. Which one are we going to be using? The higher of the two, which is 270, okay? So assume that George adopted the proportionate share of acquired firms net asset, which is alternative one. Here's how we do the computation. Chris's net asset, carrying amount is 280. Chris's company goodwill, 108. And the NCI is 12, which is in total for the NCI took 12. So in total is 120 for the goodwill. Carrying amount for the whole thing is 388. Carrying amount for the NCI is 12. So adjusted carrying amount is 400,000. So this is the carrying amount. This is the carrying amount of Chris's company, 400,000. Now again, we said we're going to compare 400 to 270 because 270 is the greater of one or two. Then we have impairment loss of 130,000. Now the question becomes, how do you allocate this impairment loss? How do you allocate this impairment loss? Okay. In terms of allocation, here's what's going to happen. 120 will be allocated to goodwill because we have goodwill of 120. We will be allocated to goodwill. The goodwill now is will be shared. Now this 120, what's going to happen will be shared. NCI will take some and the parent company will take the other. NCI will take 10% of this. 10% is 12,000. And what's left is 108. So the parent company will have to write down goodwill by 108,000, which is 90%. And the remainder 12,000 goes to NCI. Okay. And obviously we have 130,000. So 120 is toward the goodwill. What's left is 10,000. The remaining 10,000 will be, will impair assets on a pro-rata basis, other assets on a pro-rata basis. Let's take a look at the example here. So what happened is we have 120. Again, right here. 120, NCI took 12. NCI will absorb 12. Okay. So 108, this 108, zero out the goodwill. Then this 12,000 goes to NCI and what's left is 10,000. This 10,000 reduces other assets. So overall, now the company's carrying amount after the write-down is 200 and 70,000. Now this is the alternative one. Let's look at alternative two. If we're using alternative two, it means we're using the fair value method. We'll do the following. Carrying amount is 280. Goodwill is 120. Again, between 250 and 270, we're going to choose 270. 400 minus 270 equal to 130. How are we going to allocate the 130? Easy. Remember under alternative two, we have 120 of goodwill. So the whole thing, of the 130, the whole thing goes into the parent company goodwill. Okay. The parent goodwill. Okay. And what's left is 10. Anything that's left goes to impairing other assets, impairing other assets. Simply put, we don't allocate anything for the losses to the NCI goodwill. Okay. Now hopefully this makes sense. Hopefully this will help you understand that. That makes sense. Hopefully this helped you understand a little bit more, the concept of writing down goodwill. If you have any questions, any comments, by all means email me. If you're studying for your CPA exams, study hard. If you happen to visit my website for additional lectures, please consider donating. Good luck.