Problem
The following information is relevant to the preparation of the group financial statements of Fortnum, a public limited company which prepares its financial statements using IFRS for the year ended 30 April 2022:
Part I
On 1 May 2020, Fortnum acquired 60% of the equity interests of Shoal, a public limited company, for cash of $80 million. The fair value of the identifiable net assets acquired was $110 million at that date. The fair value of the non-controlling interest (NCI) in Shoal was $45 million on 1 May 2020. Fortnum uses the 'full goodwill' method for all acquisitions. The share capital and retained earnings of Shoal were $25 million and $65 million respectively and other components of equity were $6 million at the date of acquisition. The excess of the fair value of the identifiable net assets at acquisition was due to non-depreciable land.
Goodwill has been tested for impairment annually and as at 30 April 2021, an impairment loss of 20% of the carrying amount of goodwill was correctly recorded in the group accounts. However, during the year to 30 April 2022, the impairment of goodwill had reversed, and goodwill was valued at $2 million above its original carrying amount. Fortnum has recorded both the reversal of the impairment loss and the increase in the value of goodwill in the draft group accounts by debiting goodwill and crediting profit or loss.
Part II
Fortnum acquired 60% of the equity interests of Lighthouse, a public limited company, on 30 April 2020 for cash of $70 million. Lighthouse's identifiable net assets had a fair value of $86 million and the NCI had a fair value of $28 million at the date of acquisition.
Task
Explain, including the relevant calculations, how goodwill should have been calculated on the acquisitions of Shoal and Lighthouse and subsequently treated in the consolidated financial statements of Fortnum.