Question

A Ltd acquired all of the issued shares of B Ltd. When preparing the consolidated financial statements, goodwill in relation to the acquisition will be recognised when:

a. the cost of the acquisition is equal to the fair value of the subsidiary’s identifiable net assets

b. the cost of the acquisition is more than the carrying amount of the subsidiary’s identifiable net assets only to the extent attributable to the non-controlling interest

c. the cost of the acquisition of the subsidiary is less than the fair value of the subsidiary’s net assets

d. the cost of the acquisition is more than the fair value of the subsidiary’s identifiable net assets

Answer 1

Answer is ------> Option D

Explanation :

As per IFRS 3 , Goodwill will be recognized when the acquirer acquires the target company above its fair value of assets , and the difference of the amount paid is for goodwill.

It is obvious when the amount paid to acquire the company is exceeding the net fair value of identifiable assets , it will be deemed that it has been paid for the goodwill of the company , which company has earned while doing business.

Hence Option a , b and c are incorrect and option d ( as per IFRS 3 ) is correct.

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