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Acquisition accounting

15 December 2008 363 views No Comment

Dear all,

I have a question in relation to acquisition accounting in accordance with
IFRS3. In this case a parent company A acquires all the shares in
subsidiary company B for (say) 50M. This cost price represents a goodwill
over the fair value of the assets and libailities assumed of 15M. Where
should I record the 15M goodwill? Is this in the subsidiary company B or
in parent company A?

Based on IAS21, p. 47, I would say in the sub.
All the best, Farah

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As per IFRS 3 Goodwill acquired on consolidation is supposed to be shown
in the Consolidated account of the parent company in this case A.

Benaya

It is recognised in neither the Parent company nor the sub( Seperate Financial Statements). Goodwill is only ever recognised seperately in the consolidated financial statements.The calculation of goodwill based on Cost price over the net assets fairly valued is perfectly correct. However please note with the new IFRS3 & IAS27, the amount of goodwill can also be calculated based on the “full goodwill” method.
Shivan

There are two legal entities: P Parent S Subsidiary
Remener records are kept in Parent company to take account of its investment in S;
In the books of the parent company P under Non current Assets it will record Inventment in S as $50M
Consolidation is done to show the financial position of the group; as though it was one entity.

At this point goodwill $15m shall be recognised as purchased goodwill in the consolidated accounts. Neither P nor S will show records of goodwill.
The goodwill can be armotised over a period as prescribed by the directors and managemet or it can be written off to consolidated retained earnings.
Remember $50m is the cost of investment in S. It must be used to arrive at the goodwill figure of $15M as a consolidation item. The underlying figure of $35m
represents net assets of the Subsidiary S at the date of acquisition.

Dear All,

Shivan is perfectly correct according to the mail below. Goodwill in this situation can not be recorded in any of the entity’s book (parent and subsidiary) but rather on the consolidated statement of financial position. Please also refer to the new IFRS3 to get update on the full goodwill approach.

William

Hi Henry,

I agree with you on all the other information provided in your mail but not when you said goodwill should be amortized as determined by the directors. According to IFRS standards, goodwill should not be amortized but rather reviewed for impairment annually.

it should be shown in the parents group accounts as a nca ant annually tested for impairment not amortised

Hi Martijn,

As per IFRS3 itself, I suggest you use the ACCA search engine and type IFRS3, you’ll have all the explanation you want or go to the link below

http://www.accaglobal.com/members/publications/accounting_business/cpd/IFRS3

Cheers

Hi martijn,
The structure is such that, consolidation is consolidation of 2 balance sheets to find the consolidated assets and liabilities and networth.

In the standalone balance sheet of Holding:
Investment is shown as cost in the asset side of the Balance Sheet. Unless there is a change in carrying amount.
To keep it simple, lets say that carrying cost IS cost of acquisition, that is, the consideration paid, in your situation GBP 100.

In the subsidiary’s standalone BALANCE SHEET, nothing (NOTHING MOVES).
SHARE ARE ACQUIRED FROM SHAREHOLDER not SUBSIDIARY. Maybe from the markets or by approaching the shareholders.

Consolidated statement line by line addition shows goodwill.