Measuring non-controlling interest: full vs partial goodwill

Whenever a company buys less than 100% of another, it must decide how to measure the non-controlling interest, and the choice changes goodwill, equity and later impairment charges. This guide compares full and partial goodwill on one acquisition and explains what happens afterwards.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

Under IFRS 3, a non-controlling interest (NCI) that is a present ownership interest can be measured at the acquisition date either at fair value, which gives full goodwill, or at its proportionate share of the acquiree's identifiable net assets, which gives partial goodwill attributable only to the parent. The choice is made separately for each acquisition. In this guide's 80% acquisition, the NCI is 150 at fair value or 116 at its proportionate share, and goodwill is 220 or 186.

At a glance

Fair value method
Full goodwill
Proportionate share method
Partial goodwill
Choice
Acquisition by acquisition
Other NCI components
At fair value
Later purchases of NCI
Equity transactions
Excel
Purchase price allocation model
Measuring non-controlling interest: full vs partial goodwillFair value method: Full goodwill; Proportionate share method: Partial goodwill; Choice: Acquisition by acquisition; Other NCI components: At fair value; Later purchases of NCI: Equity transactions; Excel: Purchase price allocation model.KEY FACTS AT A GLANCEMeasuring non-controlling interest: full vspartial goodwillFair value methodFull goodwillProportionate share methodPartial goodwillChoiceAcquisition byacquisitionOther NCI componentsAt fair valueLater purchases of NCIEquity transactionsExcelPurchase price allocationmodelTax BakersMeasuring non-controlling interest: full vs partial goodwillFair value method: Full goodwill; Proportionate share method: Partial goodwill; Choice: Acquisition by acquisition; Other NCI components: At fair value; Later purchases of NCI: Equity transactions; Excel: Purchase price allocation model.KEY FACTS AT A GLANCEMeasuring non-controllinginterest: full vs partial goodwillFair value methodFull goodwillProportionate share methodPartial goodwillChoiceAcquisition by acquisitionOther NCI componentsAt fair valueLater purchases of NCIEquity transactionsExcelPurchase price allocation modelTax Bakers
Key facts at a glance, as set out in this guide.

Full goodwill vs partial goodwill

Two ways to measure non-controlling interestTwo ways to measure non-controlling interestTOPICProportionate shareFair valueNCI at acquisition116150Goodwill recognised186220Valuation of NCI neededNot requiredRequiredGoodwill for the NCI's shareNot allowedAllowedAvailable under US GAAPNot allowedRequired
Same deal, two answers: the choice is made for each acquisition.

A company pays 650 for 80% of a competitor whose identifiable net assets at fair value are 580. The fair value of the 20% non-controlling interest, based on the share price before the deal, is 150.

CU millionProportionate share (partial goodwill)Fair value (full goodwill)
Consideration650650
Non-controlling interest116 (20% x 580)150
Less identifiable net assets(580)(580)
Goodwill186220

The extra 34 of goodwill under the fair value method is the goodwill attributable to the non-controlling interest. The fair value per share of the NCI is often lower than the price the parent paid per share, because the parent paid a control premium.

Which companies choose which method?

Many groups use different methods for different deals, which is allowed because the choice is made deal by deal. The proportionate share method is simpler, needs no valuation of the NCI, and gives lower goodwill and lower future impairments. The fair value method gives a fuller picture of the business acquired and is more common when the acquiree is listed, so the NCI's fair value is observable. The choice applies only to present ownership interests that entitle holders to a share of net assets on liquidation; other NCI components, such as share options, are measured at fair value.

How does the non-controlling interest choice affect goodwill impairment?

Under the fair value method, goodwill is tested as recognised and any loss is allocated between parent and NCI. Under the proportionate share method, goodwill is grossed up notionally for the test to include the NCI's share, and only the parent's share of any loss is recognised. Either way the parent bears the same share of the loss. See goodwill impairment testing.

What happens after the acquisition?

  • The NCI is allocated its share of profit or loss and other comprehensive income each year, even if that makes the NCI negative.
  • Buying more shares from the NCI, or selling some while keeping control, is an equity transaction: no gain or loss, and goodwill is not remeasured. The difference between the price and the change in NCI goes to equity attributable to the parent.
  • Losing control triggers derecognition of the subsidiary's assets, liabilities and NCI, with a gain or loss in profit or loss and any retained interest remeasured to fair value.

A worked example: buying out the non-controlling interest

Two years later, the non-controlling interest stands at 140: the initial 116 plus its 20% share of 120 of post-acquisition profits. The parent buys the remaining 20% for 170. Because the parent already had control, this is an equity transaction: Dr Non-controlling interest 140, Dr Equity attributable to the parent 30, Cr Cash 170. Goodwill does not change and no gain or loss is recognised, whatever price is paid.

Can the non-controlling interest become negative?

Yes. Losses are attributed to the non-controlling interest even if that results in a deficit balance, because the NCI shares in the subsidiary's results in the same proportion as its ownership. A deficit is presented within equity, as a negative non-controlling interest, not as an asset of the group.

How does US GAAP differ?

US GAAP (ASC 805) requires the non-controlling interest to be measured at fair value, so full goodwill always arises. The proportionate share option exists only under IFRS. Model both methods in the Purchase price allocation model (Excel), and see purchase price allocation and IFRS 3 explained.

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Questions people ask

What are the two ways to measure non-controlling interest under IFRS 3?

At fair value, giving full goodwill, or at the proportionate share of identifiable net assets, giving partial goodwill.

Is the NCI measurement choice an accounting policy?

No. It is made separately for each business combination.

What happens when a parent buys more shares from the NCI?

It is an equity transaction: no gain or loss, and goodwill is not remeasured.

Does US GAAP allow the proportionate share method?

No. US GAAP requires the non-controlling interest to be measured at fair value.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 3 Business Combinations

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IFRS 3Purchase price allocationIFRS 3IFRS 3 business combinations explainedIAS 36Goodwill impairment testing

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This guide is general information. It is not tax or legal advice for your situation.