How is goodwill booked under IFRS?

The CFAI book II on page 157 explains in topic on goodwill impairment:

“Under IFRS, at the time of acquisition, the total amount of goodwill recognized is allocated to each of the acquirer’s cash-generating units that will benefit from the expected synergies resulting from the combination with the target.”

But earlier in the example it shows that it is not true. On page 155 it shows “Example 9” entitled “Goodwill”. There it says:

“Under the partial goodwill method (IFRS only), goodwill on the parent’s consolidated balance sheet would be €36,000, the difference between the purchase price and the parent’s proportionate share of the subsidiary’s identifiable assets.”

Then in consolidated BS after aquisition, goodwill is placed as a separate line of 36000 EUR and not allocated into “cash-generating units” which I understand would be PP&E or other lines of the balance sheet.

I don’t understand it. Any help?

A “cash generating unit” just means that the parent company will allocate the goodwill to its subsidiaries that benefit from the synergies (ie, why they paid over FMV for the assets).

Remember, the parent is consolidating all of its subsidiaries financial statements on the Consolidated Statements. So, if you’re BRK and you buy a firm that you expect to have synergies with a few of your other businesses, the individual subsidiaries will reflect the value of the goodwill on their INDIVIDUAL statements, but the parent as a whole still consolidates them at the aggregate level.

The reminder 4000 is NOT allocated against assets. The minority interests (liabilities) will be lower by 4000 EUR.

But I do not know if it is your point.

Thanks, so let me ask for an example of typical question.

The Parent acquired the Child when the Child had fair value of net assets of 500. The Parent paid 800. So it booked a goodwill of 300.

Now “after some time” the Child has carrying value of 780, its net assets fair value is 450 and fair value of Child is 700.

My first question is: what does it mean that “Child has carrying value of 780”?

I understand this value was at beginning 800 (500+300) and changed because of amortization, dividends from Child or other issues. So for now 780 is the sum of goodwill and booked values for Child on the moment, am I right?

Dividends won’t affect anything. The only difference should come from depreciation of the childs assets.

A carrying value of 780 doesnt make sense considering the other information you’ve given - we would need to see the rest of the problem. Goodwill is broken out separately, and “carrying value” should be the 300 of goodwill plus fair valueof net assets of 450. So it should be 750 absent any other info

I found a good example, CFAI book II page 158 - quote:

“A reporting unit of a U.S. corporation (e.g., a division) has a fair value of $1,300,000 and a carrying value of $1,400,000 that includes recorded goodwill of $300,000. The estimated fair value of the identifiable net assets of the reporting unit is $1,200,000. Calculate the impairment loss.”

So the carrying value is not always net assets + goodwill. I understand the example as “current carrying value” and not “real/should be/justified carrying value” what you probably meant.

What is my problem:

The solution in book states that impairment exist because 1300000<1400000

Then, the implied goodwill is 100000 so impairment is 300000-100000=200000

But put my numbers instead, from my last post.

Implied goodwill would be 700-450=250

Impairmend would be 300-250=50

Then the carrying value would go lower from 780 to 730.

After this operation, the test shows that subsidiary still needs to be impaired because 730>700

Where is the mistake in my thinking?

oh god, you mess it up, aco

the method u use in your recently post is not IFPS, it is USGAAP.

should it be impaired once more? Yes.

step1: 730>700 => u need to move to second step

step2: calculate implied GW, it is stil 250 => no need to be impaird any more.

So the bottom line:

Under US GAAP I can have fair value < carrying value (700<730) and no need to impair anything if “step 2” does not give a number to impair.


I see your question now, apologies for the confusion. Step 1 is the test for impairment (is carrying value > fair value of the entity?). Step is the calculation of impairment, which should always give a number.

Bottom line: calculation is different between GAAP and IFRS as APR said.

If the carrying value is greater than FV of the whole entity, you must impair goodwill.

For GAAP, there is a two step process

1.) if carrying value > fair value => impair

2.) How much to impair? Goodwill you have on books - implied goodwill. Implied goodwill = FV of entity - FV net assets

First example = 700 - 450 = 250 = implied goodwill. BV of Goodwill = 300, impairment = 300-250 = 50.


In IFRS, treatment is different. Using your first example again: If carrying value> fair value of entity, impairment = Carrying value - fair value (of entitiy as a whole)

So, 780 - 700 = 80 = impairment.