Acca of Impairment Goodwill

In: Business and Management

Submitted By juzteesa
Words 2575
Pages 11
TeCHniCal
THiS aRTiCle diSCuSSeS and SHowS boTH wayS of meaSuRing goodwill following THe aCquiSiTion of a SubSidiaRy, and How eaCH meaSuRemenT of goodwill iS SubjeCT To an impaiRmenT Review.

IMPAIRMENT
RelevanT To aCCa qualifiCaTion papeRS f7 and p2
Required 1 Calculate the goodwill arising on the acquisition of High on a proportionate basis. 2 Calculate the gross goodwill arising on the acquisition of High, ie using the fair value of the NCI. Solution 1 The proportionate goodwill arising is calculated by matching the consideration that the parent has given, with the interest that the parent acquires in the net assets of the subsidiary, to give the goodwill of the subsidiary that is attributable to the parent. Parent’s cost of investment at the fair value of consideration given $500 Less the parent’s share of the fair value of the net assets of the subsidiary acquired (80% x $400) ($320) Goodwill attributable to the parent $180 2 The gross goodwill arising is calculated by matching the fair value of the whole business with the whole fair value of the net assets of the subsidiary to give the whole goodwill of the subsidiary, attributable to both the parent and to the NCI. Parent’s cost of investment at the fair value of consideration given $500 Fair value of the NCI $100 Less the fair value of the net assets of the subsidiary acquired (100% x $400) ($400) Gross goodwill $200 Given a gross goodwill of $200 and a goodwill attributable to the parent of $180, the goodwill attributable to the NCI is the difference of $20. In these examples, goodwill is said to be a premium arising on acquisition. Such goodwill is positive goodwill and accounted for as an intangible Following the revisions to IFRS 3, Business Combinations and IAS 27, Consolidated and Separate Financial Statements in January 2008, there are now two ways of measuring the goodwill that arises on the…...

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