CAT / FIA FFA Syllabus G. Preparing Simple Consolidated Financial Statements - Goodwill - Notes 4 / 11
The value of a company will normally exceed the value of its net assets. The difference is goodwill. This goodwill represents assets not shown in the statement of financial position of the acquired company such as the reputation of the business and the loyalty of staff.
Value of the subsidiary
Where less than 100% of the subsidiary is acquired, the value of the subsidiary comprises two elements:
The value of the part acquired by the parent;
The value of the part not acquired by the parent, known as the non-controlling interest.
Positive goodwill
An intangible non-current asset in the SFP
Tested annually for impairment (amortisation of goodwill is not permitted). Impairment of goodwill is not examinable for F3 purposes
Negative goodwill
Arises where the cost of the investment is less that the value of net assets purchased.
Negative goodwill is credited directly to the statement of profit or loss.
Although there are two methods in which goodwill may be calculated following the update to IFRS 3, only the full goodwill method is examined in F3.