CFAI FSA Page 73 Last question

In question 26 answer key, why does the last sentence say “It does not matter if the full or partial goodwill method is used since there is no goodwill.”? The question mentioned there was excess of the purchase price because of unrecorded licenses. I thought this is goodwill? Also in Question 27, is this the method you use to find the fair value of unrecorded licenses? I thought since they follow IFRS, we use partial goodwill method in which we take half of Boswell’s $580 and subtract that from $320 of Purchase price.

The fact that the excess purchase price was a direct result of additional intellectual property intangibles (i.e. trademarks, copyrights, patents, etc…) does not create goodwill. The acquirer is purchasing the target company and is paying a premium solely for the ownership of the licenses. Had there been no licenses and the company had still been acquired at a premium then goodwill would have been created.

Man this is confusing. If we use Goodwill equation, there clearly is an excess amount. So this isn’t called GW when it’s some intellectual property but it is GW if excess is attributable to some long-term assets?

Vik - it looks like internally generated goodwill, brands, etc are not treated as intangible assets. Also I remember from CFA L1 (correct me If I am wrong), when you buy patents from another company, you do not consider that as an intangible asset as well… In this specific example, they have also said the economic life is estimated to be about 6 years…would’t the goodwill is considered as infinite life and are tested for impairement only?

You use the 6 years to amortise them. Goodwill is not created if the excess over purchase price can be attributed to the fair value of identifiable assets acquired I believe.