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Financial Reporting · Intangible assets

Purchased Goodwill and Other Acquired Intangibles in ACCA Financial Reporting

Updated 11 October 2026 · Fact-checked

Purchased goodwill is the amount paid for a business above the fair value of its identifiable net assets (IFRS 3). It is not amortised. You test it for impairment at least annually under IAS 36. Other acquired intangibles are recognised separately at cost or fair value and amortised if their life is finite (IAS 38).

Understand Purchased Goodwill and Other Acquired Intangibles

When one company buys another business, it often pays more than the fair value of the assets and liabilities it can identify. The extra amount pays for things you cannot separate: reputation, workforce, expected synergies. This extra is purchased goodwill.

Goodwill is only recognised when it is bought in a business combination. Internally generated goodwill is never recognised. You cannot measure it reliably, and it is not an identifiable resource controlled by the entity. So a company's own brand-building and reputation never appear as goodwill in its statement of financial position.

Under IFRS 3, you first identify the acquiree's assets and liabilities and measure them at fair value at the acquisition date. This includes intangibles the acquiree never recorded, such as brands, customer lists or licences, if they are identifiable (separable or arising from contractual or legal rights) and can be measured reliably. Goodwill is the balancing figure.

Goodwill has an indefinite useful life for accounting purposes, so IFRS does not amortise it. Instead, you test it for impairment at least once a year, and more often if there is an indication of impairment (IAS 36). Any impairment loss goes to profit or loss and is never reversed.

Other intangibles follow IAS 38. A separately purchased intangible is recognised at cost. One acquired in a business combination is recognised at fair value. If the life is finite, you amortise it over that life. If the life is indefinite, you do not amortise it, but you test it for impairment each year.

Key rules to remember

Goodwill (full method, subsidiary)
Goodwill = Consideration transferred + NCI at acquisition − Fair value of identifiable net assets at acquisition
NCI is measured at fair value (full goodwill) or at its share of net assets (proportionate method). If the result is negative, it is a bargain purchase gain.
Fair value of net assets
Net assets at FV = Share capital + Reserves at acquisition + Fair value adjustments (including newly recognised intangibles)
Use values at the acquisition date, not the year-end.
Amortisation of a finite-life intangible
Annual amortisation = (Cost − Residual value) ÷ Useful life
Residual value is usually nil for intangibles. Start when the asset is available for use.
Goodwill impairment
Impairment loss = Carrying amount of CGU (including goodwill) − Recoverable amount
Recoverable amount is the higher of fair value less costs of disposal and value in use. Apply the loss first to goodwill.
Key rules
Purchased goodwill: recognise, no amortisation, annual impairment test. Internally generated goodwill: never recognise.
Impairment of goodwill is never reversed.

How to solve Purchased Goodwill and Other Acquired Intangibles questions

Use this order for any question on goodwill or acquired intangibles.

  1. 1Decide whether the item was bought (separately or in a business combination) or generated internally. Internal goodwill is never recognised.
  2. 2For a business combination, list the fair value of the consideration transferred and the NCI at acquisition.
  3. 3Work out the fair value of net assets at the acquisition date. Add any identifiable intangibles not previously recorded and any other fair value adjustments.
  4. 4Calculate goodwill as the balancing figure. A negative figure is a gain in profit or loss after you recheck the values.
  5. 5For each other intangible, decide if the life is finite or indefinite. Amortise finite ones from the date available for use.
  6. 6At the year-end, compare the carrying amount of the CGU (including goodwill) with its recoverable amount. Record any impairment, goodwill first.
  7. 7State the effect on profit or loss and on the statement of financial position, with a short reason for each treatment.

Quickest way: Goodwill proforma in four lines

When to use it: Use for any acquisition question where you need goodwill quickly in the objective test or as the first part of a consolidation.

  1. Write consideration + NCI on the first line.
  2. Write net assets at acquisition at fair value, and deduct them.
  3. Check that an acquired brand or licence is added to net assets, which lowers goodwill.
  4. Subtract any impairment later if asked for the year-end carrying amount. Never add back.

Common mistakes in Purchased Goodwill and Other Acquired Intangibles

  • Amortising purchased goodwill.

    Older rules and local standards allowed amortisation, and other intangibles are amortised.

    Fix: Under IFRS, goodwill is tested annually for impairment and not amortised.

  • Recognising internally generated goodwill or brands.

    Students think any valuable asset can be capitalised.

    Fix: Internally generated goodwill, brands, mastheads and customer lists are never recognised. Only purchased ones are.

  • Using book values of net assets instead of fair values.

    The statement of financial position of the subsidiary is the easiest figure to find.

    Fix: Always use fair values at the acquisition date, including intangibles the subsidiary did not record.

  • Reversing a goodwill impairment loss.

    Students remember that other asset impairments can be reversed.

    Fix: Goodwill impairment is never reversed, even if the value recovers.

  • Forgetting to test indefinite-life intangibles annually.

    Students link impairment testing only to goodwill.

    Fix: Intangibles with indefinite lives and those not yet available for use are also tested every year.

  • Treating a negative goodwill result as a liability.

    The balancing figure is negative, so students carry it forward.

    Fix: Reassess the fair values, then recognise any remaining gain in profit or loss at acquisition.

Worked examples

Example 1

Alpha acquired 100% of Beta for $900,000 cash. At the acquisition date Beta's net assets at book value were $600,000. Fair values were the same as book values, except that Beta owns an unrecorded customer list from contracts, valued at $100,000. Calculate goodwill.

Show the solution
  1. Consideration transferred: $900,000. No NCI because 100% was acquired.
  2. Net assets at book value: $600,000.
  3. Add the identifiable customer list: $100,000. Fair value of net assets = $700,000.
  4. Goodwill = $900,000 − $700,000 = $200,000.

Answer: Goodwill is $200,000. The customer list is recognised separately as an intangible and amortised over its useful life.

Example 2

At the year-end, the cash-generating unit containing the $200,000 goodwill from Alpha's purchase of Beta has a carrying amount of $1,000,000, including that goodwill. Its recoverable amount is $850,000. Explain the accounting and give the amounts.

Show the solution
  1. Impairment loss = $1,000,000 − $850,000 = $150,000.
  2. Allocate the loss first to goodwill. Goodwill is $200,000, so $150,000 is charged against it.
  3. Goodwill carrying amount = $200,000 − $150,000 = $50,000.
  4. No other assets in the unit are reduced because the loss is fully absorbed by goodwill.
  5. Record $150,000 in profit or loss. It cannot be reversed in future.

Answer: Impairment loss of $150,000 is recognised in profit or loss. Goodwill is carried at $50,000 and the loss is never reversed.

Exam tips

  • In objective tests, watch for the words internally generated. If goodwill or a brand was not bought, the answer is almost always not recognised.
  • In an acquisition question, check the scenario for unrecorded intangibles. They reduce goodwill and are an easy mark to miss.
  • In written answers, name the standard for each treatment: IFRS 3 for goodwill, IAS 38 for intangibles, IAS 36 for impairment.
  • Show the goodwill working in a clear layout with headed lines. Marks are given for each correct figure even if the total is wrong.
  • Always state that goodwill impairment is never reversed and that goodwill is not amortised.

Practice questions from Intangible assets

Purchased Goodwill and Other Acquired Intangibles in other exams

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

Purchased Goodwill and Other Acquired Intangibles: frequently asked questions

Is goodwill amortised under IFRS?

No. Purchased goodwill is not amortised under IFRS. You test it for impairment at least once a year and whenever there is an indication of impairment.

What is the difference between purchased and internally generated goodwill?

Purchased goodwill arises when you buy a business for more than the fair value of its identifiable net assets, and you recognise it. Internally generated goodwill comes from your own reputation and operations and is never recognised.

How do you calculate goodwill in ACCA FR?

Add the consideration transferred and the non-controlling interest at acquisition, then deduct the fair value of identifiable net assets at the acquisition date. Include any newly recognised intangibles in the net assets.

How is an acquired intangible different from goodwill?

An acquired intangible is identifiable, so it is recognised separately at cost or fair value. It is amortised if its life is finite. Goodwill is the unidentifiable balance and is only tested for impairment.