Effect of the choice on goodwill

Learning objectives

• Calculate goodwill under both methods and the goodwill attributable to the non-controlling interest (the difference).L2, L3
• Analyse the effect of the choice on goodwill, equity and future impairment tests.L2, L3

Normative references

• IFRS 3 §19For each business combination, the acquirer measures at the acquisition date the components of non-controlling interest that are present ownership interests entitling their holders to a proportionate share of the net assets in the event of liquidation either at fair value or at the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets; the choice is made combination by combination. All other components are measured at their acquisition-date fair values, unless another measurement basis is required by IFRSs. Restriction added by the Improvements to IFRSs of May 2010 (para. 64B). The method used for a case is never imposed by the Standard.
• 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.

3 questions

• Vienne SA acquires 80% of Cèdre SA for consideration transferred of {consideration}. Cèdre's identifiable net assets, measured under IFRS 3, are {net_assets}. The fair value of the {nci_percent} non-controlling interest is {nci_fair_value}. Calculate the goodwill attributable to the non-controlling interest, i.e. the difference between goodwill calculated with that interest at fair value and goodwill calculated with that interest at its proportionate share.L2
• For a business combination in which the non-controlling interest is measured at the proportionate share, the analyst at Hêtre SA calculates goodwill as: consideration transferred less identifiable net assets. What is the error in this calculation?L2
• Isère SA acquires 75% of Tilleul SA, paying {cash_paid} in cash. At the acquisition date, Tilleul's identifiable assets have a fair value of {assets_fv} and its liabilities assumed {liabilities_fv}. Case convention: Isère measures the 25% non-controlling interest at its fair value of {nci_fv}; the entry is made at business combination level. Record the acquisition entry.L3