FRA: Intercorporate Investments - goodwill consolidation

CFAI Reading 22 EOC (#25 to #30) Partial and Full Goodwill can be used in ANY one of the accounting treatments for Intercorporate Investments, right? However, in Reading 22 EOC (#25 to #30) CFAI specifically uses the phrases ‘consolidation with full goodwill’, ‘consolidation with partial goodwill’ or just plain ‘consolidation’ to refer to ACQUISITION method. Can someone please explain why this is so?

Well the question isn’t referring to which type of goodwill to use for IFRS/GAAP.

Let me try rephrasing: CFAI interprets Acquistion method the following way (in Reading 22 EOC (#25 to #30) page 183-4) as:

‘consolidation with full goodwill’ = Acquisition method

‘consolidation with partial goodwill’ = Acquisition method

‘consolidation’ = Acquisition method

My question is: how are we supposed to know those phrases all meant Acquisition method? Am I reading this wrong?


Consolidation means to include all of the subsidiary’s accounts (balance sheet, income statement etc) in your books. Ie the process also known as the acquisition method.

Goodwill only shows up as a separate line item in Acquisition method - when you buy securities (AFS, HTM, AFT) in the open market, why would you pay more than market price for no control or significant influence? There is no reason for goodwill to exist.

In the equity method, goodwill doesnt exist as a separate line item. The investment is held at cost and tested for impairment - but the “goodwill” is carried in the cost of the investment. So, if you pay more than fair value (or whatever), you book the investment at whatever price you paid. But, you also need to depreciate FV - BV

in the acquisiton method, goodwill is broken out separately. Consolidation is a broad term - consolidation with full goodwill and consolidation with partial goodwill are methods of consolidation, and IFRS uses partial while full is required under GAAP

good explanation kwalew

careful about the extra depreciation which might be needed to reduce equity method proportion of NI

I completely missed that ‘Consolidation’ also means the ‘Acquisition’ method hence the question …

Along with Acquisition, goodwill is also a separate line item under the ‘Proportionate Consolidation’ method. And you are right that goodwill does not exist under Equity/Investments in associates.

I thnk the only thing not covered here is the adjustment for full goodwill in the minority interest.