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Consolidation – Goodwill related questions

14 May 2009 4,603 views 3 Comments

Hi all,

Can you please help me with the following queries. Thanks in advance!

1. Goodwill – On consolidation, is it possible to actually increase goodwill figures or can goodwill only be reduced/impaired?

2. IFRS 3 states that negative goodwill is to be credited to the income statement. So if we CR Income, what’s the other double entry?

Apologies if the questions are basic!

Thanks

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3 Comments »

  • ifrsexpert said:

    1. Goodwill can only be reduced or impaired. The only way goodwill can get onto a balance sheet is in paying more for an acquired company than the market value of its net identifiable assets.
    2. If you were lucky enough to pay less for an acquired company than the market value of its net identifiable assets, you have negative goodwill, which is necessarily a credit balance, right? You are not allowed (under IFRS) to carry that credit balance forward into the future, so you must get rid of it straight away by dumping it in the income statement instead of the balance sheet.

    # 14 May 2009 at 9:21 pm
  • Marcin said:

    ad 2- so effectively there will be 3 entries on acquisition (assuming you purchased net assets fair valued at 110 for 100 cash) :
    DR Net Assets 110
    CR Cash 100
    CR Income Statement 10

    HTH

    # 14 May 2009 at 9:43 pm
  • itssuprio said:

    Hi

    I would like to know if the meaning of consolidation here exactly implies with the question asked???

    1`…Is it consolidation after the acquisition of a new company???

    Or

    2…..Is it consolidation with regards to a group of companies???

    3….Has the negative goodwill been created at the time of acquisition or the value of the existing goodwill has gone down during the impairment of the asset????

    Marcin’s reply is correct in case of the first condition.

    But whether the question raised by you is connected to the 2nd condition???

    # 15 May 2009 at 4:07 pm

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