Describe three methods that have been proposed for valuing minority Essay

Describe three methods that have been proposed for valuing minority interest and goodwill in the consolidated balance sheet of a parent company and it's partially owned subsidiary - Essay Example intangible assets that come from the business connections or reputation of the company gained through several variables including competent management, customer acceptance, favourability of location, efficient production systems, among others (Ammar et al., 2001). The similarity here is that in both cases, the parent company does not have direct control of what the asset manoeuvring of these two but the two are reported on the consolidated balance sheet of the parent company as a means of reflecting the claim of assets to the company and other non-controlling shareholders (Chaney, Mead & Schermann, 2002). Because of the place of these two in the consolidated balance sheet of the parent company and the subsidiary, the methods that go into the valuation of these two have often been an area of interest to stakeholders. The paper discusses three methods that have been proposed as part of the valuation of minority interest and goodwill. The average profit method has often been used to value the goodwill of the company as reported in the balance sheet but this calculation could be done to incorporate the minority interest as well. For example in calculating goodwill based on this method, an average profit is found with an agreed number of past years’ profits. The average is then multiplied by the agreed number of years to know the goodwill in a very simple mood (Gauthier, 2007). Horrigan (1968) however noted that the issue of minority interest comes in ahead of the utilisation of the formulation given above since any abnormal profits are expected to be deducted from the net profits of the various years. Again, abnormal losses are also expected to be deducted, as well as non operating incomes such as those incomes made from non-accruing investments (Sohl et al., 2009). In all three deductions, minority interest plays a major role because even though consolidated balance sheets are prepared to appear as though the parent company fully owned the partially owned