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CPA Goodwill - YouTube
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[6]
all business combinations are required
[8]
to be accounted for using the
[9]
acquisition method
[11]
the acquisition method consists of four
[13]
steps
[14]
here we focus on the fourth step which
[17]
is the calculation
[18]
and recognition of goodwill or bargain
[20]
purchase
[22]
ifrs 3 paragraph 32 sets out the formula
[25]
for the calculation of goodwill
[27]
which is purchase consideration plus the
[30]
fair value of previously held equity
[32]
interest in the acquiree
[34]
plus the amount of non-controlling
[36]
interest
[37]
minus the fair value of the identifiable
[40]
net assets of the acquiree
[44]
efrice 3 paragraph 19 allows a choice
[47]
for the measurement of non-controlling
[49]
interest
[50]
that is the full goodwill method or the
[52]
partial goodwill method
[54]
if the entity chooses the full goodwill
[56]
method then it would measure the
[57]
non-controlling interest using the fair
[59]
value of shares held by the
[61]
non-controlling interest shareholders
[64]
for example alpha limited is a major
[66]
player in the shoe manufacturing
[68]
industry
[69]
on 31st december alpha acquired 90
[72]
share interest in beta limited for 250
[75]
thousand dollars
[77]
beta is a major competitor in the shoe
[79]
industry this acquisition gives alpha
[81]
limited control over beta limited
[84]
beta limited's net identifiable assets
[87]
had a fair value of three hundred
[89]
thousand dollars on the acquisition date
[91]
and the fair value of the
[93]
non-controlling interest was sixty
[95]
thousand dollars
[96]
what is the value of goodwill if alpha
[99]
adopts the full goodwill method
[102]
we would need to substitute the amounts
[104]
into the goodwill formula
[106]
consideration is 250 000
[110]
alpha limited did not own any previous
[112]
equity interest in beta limited so this
[114]
is zero
[115]
as alpha limited uses the full goodwill
[118]
method
[118]
the amount of nci will equal the fair
[121]
value of shares held by the
[122]
non-controlling interest shareholders
[124]
which is sixty thousand dollars the fair
[127]
value of the identifiable net assets is
[129]
equal to three hundred thousand dollars
[131]
therefore goodwill will be ten thousand
[133]
dollars
[135]
if an entity chooses the partial
[137]
goodwill method
[138]
then it would measure non-controlling
[140]
interest as the
[141]
nci percentage of the identifiable net
[144]
assets
[146]
if alpha limited adopted the partial
[148]
goodwill method
[149]
what would goodwill be
[152]
the values for all other variables would
[154]
be the same
[155]
but nci in this case would be thirty
[158]
thousand dollars
[159]
which is calculated as three hundred
[161]
thousand dollars of identifiable net
[163]
assets
[164]
times ten percent which is the
[166]
proportion attributable to the
[168]
non-controlling interest shareholders
[170]
therefore the final outcome is negative
[173]
twenty thousand dollars
[175]
this negative amount is not referred to
[177]
as goodwill but
[178]
rather as a bargain purchase or negative
[181]
goodwill
[182]
a phrase three 3 paragraph 36 requires
[185]
that when there is a bargain purchase
[186]
option
[187]
the acquirer is to reassess if
[190]
all identifiable assets and assumed
[192]
liabilities
[193]
have been accounted for in other words
[196]
the acquirer must re-evaluate whether
[198]
step 3 of the acquisition method
[200]
was correctly done if there is still a
[204]
bargain purchase
[205]
after reassessing step 3 then the amount
[208]
shall be recognized directly in profit
[209]
and loss
[210]
on the acquisition date goodwill
[213]
is recognized as an asset at acquisition
[216]
date
[217]
so now we need to consider how goodwill
[219]
is measured in subsequent years
[221]
after initial recognition efforts 3
[224]
paragraph b63a requires it to be
[227]
measured as the amount initially
[229]
recognized
[230]
minus accumulated impairment losses
[233]
there are two important rules relating
[235]
to subsequent measurement of goodwill
[237]
the first is that no amortization is
[240]
permitted for goodwill
[242]
and the second is that goodwill must be
[244]
tested annually
[246]
for impairment in terms of ies 36.
[250]
to recap goodwill calculation can differ
[253]
depending on whether the full goodwill
[254]
method
[255]
or partial goodwill method is used
[258]
further
[258]
there are rules relating to subsequent
[260]
measurement of goodwill
[261]
in terms of efforts 3 and is 36.
[268]
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