Page 324 - F1 Integrated Workbook STUDENT 2018

Chapter 19

3.4 Goodwill

As mentioned in the previous section, goodwill is treated in accordance with IFRS 3
(revised) Business Combinations.

The parent may pay more than the value of the entity's net assets because of:

 the entity's positive reputation

 a loyal customer base or

 staff expertise, etc.

This excess is called goodwill and is capitalised on the consolidated statement of
financial position (CSFP). It is subject to an annual impairment review to ensure its
value has not fallen below the carrying value.

Occasionally the parent company may pay less than the value of the subsidiary's net
assets. This may occur because a quick purchase is necessary. In this rare situation
the "negative goodwill", or discount on acquisition, is credited to group retained
earnings (to increase group profits).

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