Foreign Subsidiary: Goodwill Translation and NCI
Parent P Co. (Yangon) acquired 75% of S Pte Ltd (Singapore) on 1 January 2024 for USD 6.0 million cash. S's functional currency is US dollars; P presents consolidated financial statements in MMK under MFRS. On acquisition, S's identifiable net assets had a fair value of USD 5.0 million; the carrying amounts equalled fair values except a customer list with a fair value of USD 400,000 and remaining life of four years, not recognised by S. P measures NCI at proportionate share of net assets. Exchange rates: 1 Jan 2024 USD 1 = MMK 2,100; 31 Dec 2024 = MMK 2,150; average 2024 = MMK 2,130. During 2024 S sold inventory to P for USD 500,000; the inventory had cost S USD 400,000. At 31 December 2024 P still held 60% of these goods. S declared a dividend of USD 300,000 on 20 December 2024, payable in February 2025; P had not recorded it. S's profit for 2024 was USD 1.2 million, before any adjustment for the customer list. No impairment of goodwill. The group accountant has translated goodwill at the average rate and has taken 75% of S's dividend to profit or loss.
1. Compute goodwill at acquisition and explain the rate at which it should be translated at 31 December 2024. Show the MMK amount and where exchange differences go.
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Goodwill at acquisition: consideration 6.0 + NCI (25% × 5.0 = 1.25) − fair value of identifiable net assets 5.0 = USD 2.25m. The customer list is part of the identifiable net assets at fair value (USD 0.4m), not goodwill. Goodwill is an asset of the foreign operation. Under MFRS 121/IAS 21, it is translated at the closing rate, not the average rate: USD 2.25m × 2,150 = MMK 4,837.5m. At the acquisition rate it would be 4,725m; the 112.5m difference is an exchange difference recognised in OCI and accumulated in the foreign currency translation reserve. On disposal of the subsidiary, the cumulative amount is reclassified to profit or loss.
2. Calculate S's contribution to consolidated profit attributable to owners of P and to NCI, and the NCI balance at 31 December 2024. Explain the dividend adjustment.
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S's profit 1.2 − customer-list amortisation 0.1 = 1.1. Unrealised profit: 0.1 × 60% = 0.06 (upstream sale), so adjusted S profit = 1.04. NCI share = 25% × 1.04 = 0.26; owners' share = 0.78 (before P's own profit). The dividend does not affect consolidated profit. P's 75% share (0.225) is intra-group dividend income and is eliminated against S's distribution. The NCI share (0.075) is a distribution to NCI. If P had not recorded the dividend, first record receivable/income in P's separate books, then eliminate the 0.225 in consolidation. NCI at 31 Dec = 1.25 + 0.26 − 0.075 = USD 1.435m × 2,150 = MMK 3,085.25m.
3. Discuss whether the customer list should be recognised separately and how it affects goodwill and NCI.
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The customer list is an identifiable intangible asset, separate from goodwill, because it is separable/contractual and fair value can be measured. Recognise at acquisition FV USD 0.4m; amortise over four years (USD 0.1m in 2024). It is included in the net assets in the goodwill calculation and in NCI's proportionate share; it is not part of goodwill. If it had been omitted, goodwill would be overstated by USD 0.3m (0.4 less 0.1 amortisation) and profit/NCI would be wrong. Disclosure of the intangible and amortisation is required.