IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

406

Wiley IFRS: Practical Implementation Guide and Workbook

The restructuring provision is not allowed under IFRS. The intangibles will have to be accounted for and

amortized over 10 years. The contingent liabilities will need recording also. The net assets of X have

increased significantly, and, therefore, it is unlikely that goodwill will be impaired at the financial year–

end.

6. GOODWILL

6.1

Goodwill should be recognized at the acquis ition date as an asset and is initially measured at

its cos t being the excess of the cos t of the acquisi tion over the acquirer's interest in the net fair

value of the identifiable assets, liabilit ies, and co ntingent liabilities. Goodwill should be measured

after initi al recognition at cost less any acc umulated impairment charge.

6.2 Goodwill should not be amo rtized but tested at least annually for impa irment in accorda nce

with lAS 36 . Th e term " negative goo dwill" has been dropped from the Standard; instead, it is de–

sc ribed as the "excess of the acquirer's interest in the net fair value of the acquiree's identifiable

assets, liabilities, and contingent liabilities ove r the cost."

6.3 The IFRS assumes that negati ve goodwill would arise onl y in exception al circums tances.

Th erefore, before determining that negati ve goodwill has arisen , the acquirer has to reasse ss the

identification and measurement of the net assets and contingent liabilities acquired and also to look

at the measurement of the co st of the business combination. If it app ears that negative goodwill has

arisen, it must be recognized immedi ately in profit or loss .

6.4 Th e Standard says that any negative goodwill recognized would probably be the resu lt of one

of the se factors:

• Potential errors in the measurement of the fair value of either the cost of the bu siness com–

bination or the identifiable assets, liabiliti es, or contingent liabilities

• A requirement in an accounting Standard to mea sure the net assets at an amount that is not

fair value; for example, deferr ed taxation and bal ances recogni zed on acquis ition will not be

discounted

• It is a genuine bargain purchase.

7. PIECEMEAL ACQUISITION

7.1

It is possible that the business combi nat ion may have occ urred in stages. Successive share

purch ases may have result ed in contro l bei ng gained by the acquirer. In this case, eac h share ex–

change transaction sho uld be trea ted sepa rately by the acquirer using the cos t of the tran sact ion and

fai r value of the net assets, liabilities, and co ntinge nt liab ilities at the date of eac h transaction to

determine the amount of any goo dw ill.

7.2 Before qu alifying as a bu siness combination, the transaction may in fact be treated as an in–

vestment in an associate and be accounted for in accorda nce with lAS 28. If this is the case, then

the fair values of the net assets acquired will have been established at this point , and goodwill will

also have been determined.

Case Study 4

Purchase consideration

110

Holding acquired

25%

45%

Dale o f acquisition

July 1, 20X4

December

31, 20X5

Facts

Mactire, a public limited company, acquired these share holdings in Hand:

Fair value ofnet asse ts

Mactire accounts for the investment in Hand at fair value. The share price of Hand at December

3 1,

20X4, is $5 million; at December

31 ,

20X5, it is $6 million. Hand has no contingent liabilities at the

above dates. The next balance sheets relate to Mactire and Hand at December

3 1,

20X5: