Financial Accounting · Subsidiaries

How to Calculate Goodwill on Acquisition in ACCA FA

Updated 11 October 2026 · Fact-checked

Goodwill on acquisition under IFRS 3 is the consideration transferred, plus the non-controlling interest at acquisition, less the fair value of the subsidiary's identifiable net assets at the acquisition date. A positive result is goodwill. It is tested for impairment each year, and any loss is charged to group profit.

Understand Goodwill on Acquisition

When a parent buys control of a subsidiary, it usually pays more than the book value of the subsidiary's net assets. The extra amount buys things the balance sheet does not show, such as reputation, skilled staff and future profits. This extra amount is goodwill.

The group accounts must show the subsidiary's assets and liabilities at their fair value on the date control is gained. Book values are often different. So you first adjust the subsidiary's net assets to fair value, then compare them with what was paid.

The calculation looks at the whole subsidiary, not just the share the parent owns. This is why non-controlling interest (NCI) is added. The parent pays for its own share only. Adding NCI at acquisition grosses the deal up to 100% of the subsidiary. In ACCA FA, NCI at acquisition is normally measured at fair value, or at its proportionate share of the fair value of net assets. The question will tell you which.

Goodwill is not amortised. It is tested for impairment at least once a year. If its recoverable amount falls below its carrying amount, you write it down and charge the loss to profit or loss. An impairment loss on goodwill is never reversed later.

If the result is negative, the parent has made a bargain purchase. You first check that all assets and liabilities have been identified and measured correctly. Any remaining gain is then recognised in profit or loss.

Key formulas to remember

Goodwill at acquisition: Goodwill = Consideration transferred + NCI at acquisition − Fair value of identifiable net assets at acquisition; Use values at the acquisition date, not the year-end date.
Fair value of net assets at acquisition: Share capital + Reserves at acquisition + Fair value adjustments; Fair value uplifts increase net assets. Fair value falls reduce them.
NCI at acquisition (proportionate method): NCI % × Fair value of net assets at acquisition; Use this only when the question says NCI is measured at its proportionate share.
NCI at acquisition (fair value method): NCI shares × Fair value per share at acquisition; The question gives the fair value. Use it as stated.
Goodwill carried in the group: Goodwill at acquisition − Accumulated impairment; Impairment is never reversed. It is charged to group profit or loss.
Share exchange consideration: Shares issued × Market price per share at acquisition date; Add any cash paid. Deferred consideration is included at its present value.

How to solve Goodwill on Acquisition questions

Use the same layout every time. Keep it to a short goodwill working with the acquisition date as the reference point.

1Identify the acquisition date and the percentage the parent bought. Check that the parent gained control.
2Total the consideration transferred: cash paid, shares issued at fair value and discounted deferred consideration. Leave out acquisition costs, which are expensed.
3Work out NCI at acquisition, using fair value or the proportionate share as the question says.
4Build the subsidiary's net assets at acquisition: share capital plus reserves at that date.
5Adjust to fair value. Add uplifts to assets such as land, and deduct any extra liabilities. Remember the depreciation effect on later years.
6Apply the formula: consideration plus NCI less net assets at fair value. A positive result is goodwill.
7Deduct any impairment to reach goodwill in the consolidated statement of financial position. Charge the loss to group reserves, and share it with NCI only if NCI was measured at fair value.

Quickest way: Four-line goodwill working

When to use it: Use this for multiple choice and number entry questions in Section A, where speed matters.

Write four lines: Consideration, NCI, Net assets (negative), Goodwill.
Fill net assets as share capital plus reserves at acquisition plus any fair value uplift, all in one sum.
Add the first two lines and subtract the third. Do not stop to calculate anything else.
Check the question asks for goodwill at acquisition or at the year-end. If year-end, subtract impairment last.

Common mistakes in Goodwill on Acquisition

Using current reserves instead of reserves at the acquisition date.
The statement of financial position shows current reserves, and they are easy to grab.
Fix: Read for the date of acquisition. Use only the reserves given for that date.
Forgetting to add NCI in the goodwill working.
Students think goodwill relates only to the share the parent bought.
Fix: Always start with the three-part formula: consideration, plus NCI, less net assets.
Ignoring fair value adjustments or applying them with the wrong sign.
The adjustment is buried in a note, and an uplift is confused with a deduction.
Fix: An uplift increases net assets and reduces goodwill. A shortfall does the reverse.
Including acquisition costs in consideration.
Legal and advisory fees feel like part of the price.
Fix: Under IFRS 3 these are expensed to profit or loss. Leave them out of goodwill.
Measuring share consideration at nominal value or book value.
Shares have a par value that is quoted in the question.
Fix: Use the fair value, which is the market price at the acquisition date, times the number of shares issued.
Amortising goodwill every year.
Other intangible assets are amortised, so students copy the habit.
Fix: Goodwill is not amortised. It is tested for impairment and written down only if impaired.

Worked examples

Example 1

Parent bought 80% of Sub on 1 January for $500,000 cash. At that date Sub had share capital of $100,000 and retained earnings of $300,000. Land in Sub's books was $50,000 below fair value. NCI is measured at fair value of $110,000. Calculate goodwill.

Show the solution

Consideration = $500,000.
NCI at acquisition = $110,000.
Net assets at fair value = 100,000 + 300,000 + 50,000 = $450,000.
Goodwill = 500,000 + 110,000 − 450,000 = $160,000.

Answer: Goodwill at acquisition is $160,000.

Example 2

Using the data in the previous example but with NCI measured at its proportionate share of net assets, calculate goodwill. At the year-end an impairment review shows goodwill should be written down by $20,000. State the year-end carrying amount.

Show the solution

Consideration = $500,000.
Net assets at fair value = $450,000 as before.
NCI = 20% × 450,000 = $90,000.
Goodwill = 500,000 + 90,000 − 450,000 = $140,000.
Year-end goodwill = 140,000 − 20,000 = $120,000.
Because NCI is measured proportionately, the whole impairment is charged to the parent's share of group reserves.

Answer: Goodwill at acquisition is $140,000 and the year-end carrying amount is $120,000.

Exam tips

Read the NCI method before you start. It changes the answer and the question always states it.
Hunt for the acquisition date and the reserves at that date. Examiners often give both current and acquisition figures.
In multiple response questions, check each statement against the rule: goodwill is not amortised, impairment is not reversed and acquisition costs are expensed.
Show a clean goodwill working in the Section B consolidation question. Marks are often given for each line even if the final figure is wrong.
For share exchanges, convert shares to fair value first and add any cash separately.

Practice questions from Subsidiaries

Goodwill on Acquisition in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Goodwill on Acquisition: frequently asked questions

What is goodwill on acquisition in ACCA FA?

It is the amount by which consideration plus NCI exceeds the fair value of the subsidiary's identifiable net assets at the acquisition date. It represents benefits such as reputation and expected future earnings. It is shown as an intangible asset in the consolidated statement of financial position.

Why do we add non-controlling interest when calculating goodwill?

The parent pays only for its own share, but it consolidates 100% of the subsidiary's net assets. Adding NCI brings the calculation up to the whole subsidiary. This keeps the comparison fair.

How do fair value adjustments affect goodwill?

An increase in the fair value of a subsidiary's assets raises net assets at acquisition and so reduces goodwill. A fall in fair value does the opposite. The adjustment also changes later depreciation, which affects post-acquisition profit.

Is goodwill amortised in group accounts?

No. Goodwill is tested for impairment at least once a year. If it is impaired, the loss is charged to profit or loss and cannot be reversed in later years.

What if goodwill comes out negative?

This is a bargain purchase. You first check that all assets and liabilities have been correctly identified and measured. Any gain left is recognised in profit or loss.