For example, Sawmill acquires Leg Turner by buying 80 percent of its equity

for $200 million cash. The total value of the identifiable net assets measured
in accordance with AASB3 is $50 million. Sawmill chooses to use the partial
goodwill method in this, which means it recognises all of the identifiable net
assets on the acquisition date. The non-controlling interest (NCI) is recorded
as its proportionate share of those assets. Using the formula, then, goodwill is
recognized as:
Fair value of consideration (cash)
NCI as proportion of identifiable assets
Previously held interest
Minus net assets acquired
Goodwill
Because NCI is recorded using the partial method, goodwill is recognised only
for Sawmill’s portion. (No goodwill is recognized for the NCI).
Using the full goodwill method, you measure all of the assets and liabilities
associated with the controlling and non-controlling interests, including
goodwill. Full goodwill is recognized as:
The consideration for the interest in the target plus the fair value of any NCI in
the target plus the value of any previously held equity in the target minus the
net of the assets acquired and liabilities assumed.
Using the same acquisition of Leg Turner for $150 million in cash, let’s
assume the value of total identifiable net assets is $50 million. Sawmill
chooses to measure NCI using fair value, which is $100 million. In this case,
goodwill is calculated this way:
Cash consideration
Fair Value of NCI
Previous interest owned in target
Identifiable net asset acquired
Goodwill
It can be a complicated matter to determine the fair value of NCI. However, in
some instances it’s quite simple. The purchasing entity simply based the value
on active market prices for the share it doesn’t hold and that are publicly
traded. When there is no active market however, the purchasing business
must measure fair value using other valuation techniques including:

 A market measurement that uses market multiple for publicly traded

companies that are comparable to the target firm, or

 An income valuation using a discounted cash flow analysis.

If you are planning an acquisition involving goodwill, consult with your adviser
for the best method to use.