FRF7
Syllabus A. THE CONCEPTUAL AND REGULATORY FRAMEWORK A4. The Concept Of A Group

A4i. Why use Fair values when calculating goodwill? 10 / 11

Syllabus A4i)

Explain why it is necessary to use fair values for the consideration for an investment in a subsidiary together with the fair values of a subsidiary’s identifiable assets and liabilities when preparing consolidated financial statements.

This is to ensure goodwill is calculated correctly

If a company has net assets of 100 in its accounts - these aren't necessarily at FV

Lets say the FV is actually 120

Now someone buys this company for 150 - how much is goodwill?

If FV of assets is used then it is 30 (this is the correct figure)