Measuring goodwill

Learning objectives

• Calculate goodwill from the consideration transferred, the non-controlling interest, the previously held equity interest and the identifiable net assets.L1, L2, L3
• Record the business combination entry that recognises the assets, the liabilities, the non-controlling interest and goodwill.L1, L2, L3

Normative references

• IFRS 3 §32Goodwill = consideration transferred + non-controlling interest + acquisition-date fair value of the previously held equity interest (business combination achieved in stages) − net amount of the identifiable assets acquired and liabilities assumed, measured in accordance with IFRS 3 at the acquisition date.

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

24 questions

• Which of the following transactions undertaken by Orféa SA is excluded from the scope of IFRS 3?L1
• To determine goodwill, the identifiable assets acquired and the liabilities assumed are measured at their fair value at the acquisition date, subject to exceptions.L1
• On 30 June, Cirque SA acquires 100% of Brume SA. At that date, Brume's identifiable assets have a fair value of {fv_assets} and its liabilities assumed a fair value of {fv_liabilities}; its book equity is {carrying_equity}. Case convention: the fair values are case data; no deferred tax or contingent liability is to be taken into account. Calculate the identifiable net assets measured under the acquisition method.L2
• Ibis SA acquires 100% of Sylve SA for consideration transferred of 5,500,000. A Sylve patent is recorded at 1,200,000 in its accounts; the acquirer's valuer estimates it at 1,800,000 at the acquisition date, using a technique based on future cash flows, for lack of an active market. The rest of Sylve's identifiable net assets, measured at fair value, is 3,000,000. Write a short note concluding on the amount of goodwill, distinguishing facts of the case, rule and professional judgement.L3
• On acquiring Aubrac SA, a building is recognised at a fair value of {fv_building}; its tax base remains {tax_base}. Case convention: the applicable tax rate is {tax_rate}, and the difference is a taxable temporary difference, fully recognised. Calculate the deferred tax liability recognised in the business combination.L2
• At the acquisition date, Garonne SA recognised a machine of the acquiree at a fair value {uplift} above its tax base. Case convention: the applicable tax rate is {tax_rate}, the difference is a taxable temporary difference and the entry is made at business combination level, against goodwill. Record the deferred tax entry.L3
• In a purchase price allocation file, the analyst at Lys SA notes a fair value uplift of 400,000 on an acquired building whose tax base is lower, but recognises no deferred tax and calculates goodwill on that basis. What is the error?L2
• The choice between fair value and the proportionate share of identifiable net assets to measure the non-controlling interest is a single policy, applying to all of the entity's business combinations.L1
• On 1 April, Seine SA acquires 70% of Marne SA. Marne's identifiable net assets, measured under IFRS 3, are {identifiable_net_assets}. The other shareholders hold {minority_percent} of the capital. Case convention: Seine chooses, for this business combination, to measure the non-controlling interest at its proportionate share of identifiable net assets. Calculate the non-controlling interest at the acquisition date.L2
• Rhin SA carried out two business combinations in the year: Aube SA (listed, with a price available for the minority shareholders) and Braise SA (unlisted). Rhin's accounting manual requires the proportionate share “for all business combinations”. Write a short note concluding on this policy, distinguishing facts of the case, rule and professional judgement.L3
• Which formula gives the goodwill of a business combination?L1
• Allier SA acquires 80% of Doux SA for consideration transferred of {consideration}. Case convention: the non-controlling interest is measured at {nci_amount} and Doux's identifiable net assets, measured under IFRS 3, are {net_assets}; there is no previously held interest. Calculate goodwill.L2
• Plaine SA acquires 100% of Sillon SA, paying {cash_paid} in cash. At the acquisition date, Sillon's identifiable assets have a fair value of {assets_fv} and its liabilities assumed {liabilities_fv}. Case convention: the entry is made at business combination level; there is no non-controlling interest or previously held interest. Record the acquisition entry.L3
• Pivoine SA acquires 100% of Roseau SA by paying {cash_paid} in cash and issuing shares whose fair value at the acquisition date is {shares_fair_value}. Roseau's identifiable assets have a fair value of {assets_fv} and its liabilities assumed {liabilities_fv}. Case convention: the entry is made at business combination level, the shares issued being credited to share capital and premium. Record the acquisition entry.L2
• Mont SA held 30% of Aval SA, carried at {carrying_amount}. On 30 September, it acquires a further interest that gives it control; the fair value of its previous 30% at that date is {fair_value}. Case convention: an equity-accounted interest, whose remeasurement falls in profit or loss; no amount has been recognised in other comprehensive income in respect of this interest. Calculate the remeasurement gain on the previously held interest.L3
• Orchis SA held 25% of Pivert SA, carried at {carrying_amount}. At the date it obtains control, the fair value of those 25% is {fair_value}. Case convention: an equity-accounted interest, whose remeasurement falls in profit or loss; no amount is accumulated in other comprehensive income; the entry is made at business combination level. Record the entry remeasuring the previously held interest.L3
• Sol SA held 20% of Lune SA, carried at 600,000; it buys a further 55% for 2,700,000 in cash and obtains control. At that date, the fair value of the previous 20% is estimated at 900,000, the 25% non-controlling interest at 800,000 (fair value) and Lune's identifiable net assets at 3,900,000. Case convention: an equity-accounted interest, whose remeasurement falls in profit or loss; no amount is accumulated in other comprehensive income. Write a note concluding on the profit in profit or loss and on goodwill, distinguishing facts of the case, rule and professional judgement.L4
• Quartz SA obtains control of Argile SA, in which it held an interest carried at {carrying_amount}. At the acquisition date, the fair value of that interest is {fair_value}. Case convention: a cumulative gain of {oci_balance} is recorded in other comprehensive income in respect of this interest and would be reclassified to profit or loss on a direct disposal; the remeasurement of the interest falls in profit or loss. Calculate the total gain recognised in profit or loss at the acquisition date.L3
• At the date Dolmen SA takes control of Fjord SA, a cumulative gain of {oci_balance} stands in the other comprehensive income reserve in respect of the previously held interest; it would be reclassified to profit or loss on a direct disposal of that interest. Case convention: the entry remeasuring the interest is made separately. Record the reclassification entry.L4
• Brise SA acquires 100% of Cirrus SA on 1 March for {consideration}. At the reporting date of 30 June, provisional identifiable net assets are {provisional_net_assets}. In October, before the end of the measurement period, information about facts existing at 1 March reveals an unrecognised liability: identifiable net assets are reduced to {revised_net_assets}. Case convention: there is no non-controlling interest or previously held interest. Calculate the retrospective adjustment to goodwill.L2
• Six months after the acquisition of Aulne SA, and before the end of the measurement period, Platane SA learns of a dispute that existed at the acquisition date and was not recognised, whose liability is measured at {new_liability}. Case convention: no deferred tax is to be considered and the retrospective adjustment is made at business combination level. Record the adjustment entry.L3
• Cristal SA acquired {parent_percent} of Sable SA and measured the non-controlling interest at its proportionate share of identifiable net assets; the goodwill recognised is {goodwill_recognised}. Sable is a cash-generating unit to which this goodwill is allocated. Case convention: the goodwill recognised belongs entirely to the {parent_percent} share. Calculate the carrying amount of goodwill grossed up to 100% before comparison with the recoverable amount.L3
• Zodiac SA acquires Tessin SA and recognises goodwill of 600,000. The expected synergies will benefit Zodiac's cash-generating units North and South, which are monitored separately for internal management purposes, and not Tessin itself. How does it allocate the goodwill?L4
• Just before 1 April, Pélan SA held 30 per cent of Quercy SA, its associate. On 1 April, it acquires a further 40 per cent and obtains control of Quercy. Case data: Quercy is a business. How should the transaction be classified?L2