Consolidations 6: Forecast 5 Handling of Minority and Associate Interests and Goodwill

Minority and Associate Interests in Consolidation Forecast

This is the 6th in a series of articles on Group Consolidated Forecast, written by Johnny Kipps, Forecast 5 UK

Definition

A minority interest is where the shareholder has no influence on the activity of the subsidiary, normally meaning the shareholder holds less than 50% of the equity;

An Associate is where the shareholder has significant influence on the activity of the subsidiary normally meaning the shareholder or parent hold more than 50% of the equity.

The key impacts are as follows

When you eliminate a minority interest the minority shareholding owned is removed from net profit and dividends to reflect the correct share of the entity to the holding company. 

The consolidation will include all revenues and expenses reduced by the Minority's share of the net profit and dividends
When you consolidate an Associate interest the portion consolidated is the group’s net profit share and dividends of the investment only and the revenues and expenses are ignored 

An Example of this:

 Associate Interest       

 Subsidiary $ 

Consolidated values

 Revenue

1000,000

 Net Profit

100,000 

 Associate Share 10%

 10,000

 10,000

Goodwill in a Consolidation Forecast
Goodwill arises when the investment - per the parent company books - in a subsidiary exceeds the net assets of the subsidiary. This difference is Goodwill.

If an entity decides that the goodwill is impaired, it must be written down to its recoverable amount. Once goodwill is impaired, the impairment cannot be reversed.

Forecast 5 creates an asset for Goodwill which can be reduced as appropriate where impairment is recognised.

The process is straightforward; Forecast 5 makes the preparation of group consolidated forecasts simple!

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You can read more in our series Group Consolidated Forecasts:

Consolidations 1: Consolidation Forecast Made Easy with All the Bells

Consolidations 2: Intercompany profits & losses and loans

Consolidations 3: Consolidation with Multiple Currencies

Consolidations 4: Actual results in Group Consolidated Forecasts

Consolidations 5:  Allocation of Group admin amongst subsidiaries

Consolidations 6: Forecast 5 handling of Minority and Associate Interests and Goodwill