Goodwill and bargain purchase

Learning objectives

• Calculate the difference between cost and the share of net fair values (goodwill included in the carrying amount and not amortised, or income).L2, L3
• Explain why goodwill is neither presented separately nor amortised.L3

Normative references

• IAS 28 §32The equity method is applied from the date on which the investment becomes an associate or a joint venture. On acquisition, the difference between the cost of the investment and the entity's share of the net fair value of the investee's identifiable assets and liabilities is accounted for as follows: (a) goodwill is included in the carrying amount of the investment and its amortisation is not permitted; (b) any excess of the share of net fair value over cost is income included in the share of profit or loss of the period of acquisition. The subsequent share of profit or loss is adjusted, for example for depreciation based on fair values at the acquisition date and for impairment losses (goodwill, property, plant and equipment).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• Alba SA acquires {ownership} of Brise SA, an associate, for {investment_cost}. At the acquisition date, the fair value of Brise's identifiable net assets is {identifiable_net_assets}. Calculate the goodwill included in the carrying amount of the investment (income would be shown with a minus sign).L2
• Alba SA acquires {ownership} of Cime SA, an associate, for {investment_cost} in cash. At the acquisition date, the fair value of Cime's identifiable net assets is {identifiable_net_assets}. Record the acquisition entry, the excess of the share over the cost being recognised as income.L3
• The goodwill included in the cost of an associate is neither amortised nor presented separately: it forms part of the carrying amount of the investment.L3
• Alba SA loses control of Delta SA but retains 30%, which gives it significant influence. The fair value of the retained interest is 1,500,000; Alba's share of the net fair value of Delta's identifiable assets and liabilities is 1,300,000 (case data). What is the cost of the equity-accounted interest and how is the difference from the share treated?L4