8.7

Question 1

What is goodwill under US GAAP?

Answer 1

1. The amount by which fair value of the subsidiary is greater than the fair value of identifiable net assets
2. This is FULL GOODWILL

Question 2

What is goodwill under IFRS?

Answer 2

1. The excess of purchase price over the acquiring company’s proportion of identifiable net assets
2. This is known as PARTIAL GOODWILL
3. However, IFRS allows the Full Goodwill method

Question 3

What is the formula for full goodwill?

Answer 3

Fair value of the equity of the whole subsidiary
LESS
Fair value of the identifiable net assets

Question 4

Formula for partial goodwill

Answer 4

Purchase price
LESS
% owned X fair value of identifiable net assets

OR
% owned x full goodwill

Question 5

What is the accounting treatment of goodwill?

Answer 5

It is an unidentifiable intangible asset that cannot be separated from the business

Question 6

What does the full goodwill method result in?

Answer 6

1. Higher goodwill
2. Higher total assets (lower return on assets)
3. Higher total equity (lower return on equity)

Question 7

What does the partial goodwill method result in?

Answer 7

1. Lower goodwill
2. Lower total assets (higher return on assets)
3. Lower total equity (higher return on equity)

Question 8

How does goodwill affect the minority interest on the balance sheet?

Answer 8

1. Full goodwill: the minority interest is based on the acquired company’s fair value
2. Partial goodwill: the minority interest is based on the fair value of the acquired company’s net identifiable assets

Question 9

Is goodwill amortised?

Answer 9

No
It is tested annually for impairment

Question 10

How is impairment treated under IFRS?

Answer 10

1. Goodwill cannot be separated from the business, so it is measured as the reporting unit level
2. If the carrying amount of the cash generating unit (where the goodwill is assigned) exceeds the recoverable amount, an impairment loss is recognised

Question 11

How is impairment treated under US GAAP?

Answer 11

1. Goodwill cannot be separated from the business, so it is measured as the reporting unit level
2. If the carrying amount of the cash generating unit (where the goodwill is assigned) exceeds the recoverable amount, an impairment loss is recognised
3. The loss is measured as the difference between the carrying amount of the goodwill and the implied fair value of the goodwill