Financial Reporting · Preparation of consolidated financial statements for a simple group

Goodwill and Fair Value Adjustments at Acquisition in ACCA FR

Updated 11 October 2026 · Fact-checked

Goodwill under IFRS 3 is the consideration transferred, plus the non-controlling interest (NCI), less the fair value of the subsidiary's identifiable net assets at acquisition. NCI is measured at fair value (full method) or at its share of net assets (proportionate method). A negative result is a bargain purchase gain in profit or loss.

Understand Goodwill and Fair Value Adjustments at Acquisition

When a parent buys control of a subsidiary, the group does not just add up the subsidiary's book figures. IFRS 3 treats the deal as an acquisition. The group must show what it paid and what it got, measured at fair value on the acquisition date.

Goodwill is the gap between the two. You take what the parent paid (consideration), add the value given to the non-controlling interest (NCI), and deduct the fair value of the subsidiary's identifiable net assets. The NCI is added because the group consolidates 100% of the subsidiary's net assets, so goodwill must cover the whole business, not just the parent's share.

There are two ways to value the NCI. Under the full (fair value) method, NCI is measured at its acquisition-date fair value, usually the NCI's share count multiplied by the market share price. Goodwill then includes the NCI's share of goodwill. Under the proportionate method, NCI is its percentage share of the subsidiary's fair value of net assets, so goodwill is only the parent's share. The question will tell you which to use or give you the data for it.

Fair value adjustments matter because the subsidiary's books often show assets at old carrying amounts. If land is worth more than its book value, you uplift it in the consolidation. That raises net assets at acquisition and so lowers goodwill. You then deal with any extra depreciation after acquisition. Contingent consideration is included at fair value, and acquisition costs are expensed, not added to goodwill.

If net assets acquired exceed consideration plus NCI, you have a bargain purchase. First reassess that you identified and measured all assets, liabilities and consideration correctly. Any remaining excess is a gain in group profit or loss. Goodwill is then tested for impairment each year, not amortised.

Key rules to remember

Goodwill (full method): Goodwill = Consideration + NCI at fair value − Fair value of net assets at acquisition; NCI fair value is usually NCI shares × share price at acquisition date.
Goodwill (proportionate method): Goodwill = Consideration + (NCI % × Fair value of net assets) − Fair value of net assets; Equivalent to the parent's share of goodwill only.
Net assets at acquisition: Share capital + Reserves at acquisition + Fair value adjustments; Fair value adjustments are uplifts or reductions to carrying amounts at the acquisition date.
Bargain purchase: If net assets > consideration + NCI, the excess is a gain in profit or loss; Reassess first. No goodwill is recognised.
Impairment of goodwill (full method): Impairment is shared between parent and NCI in proportion to their shares; Under the proportionate method, only the parent's share of the impairment is recognised.
Fair value adjustment on consolidation: Dr/Cr asset by (fair value − carrying amount) at acquisition; adjust depreciation after acquisition; Adjust the net assets at acquisition and at the reporting date.

How to solve Goodwill and Fair Value Adjustments at Acquisition questions

Use a fixed layout so you never miss a number. Work in a goodwill working, then carry the figures into the statement of financial position.

1Read the method required: full or proportionate. Check whether NCI fair value or an NCI share price is given.
2Work out the consideration transferred: cash, shares at fair value on the acquisition date, plus contingent consideration at fair value. Leave out acquisition costs; expense them.
3Build the net assets at acquisition: share capital plus reserves at the acquisition date, plus or minus fair value adjustments.
4Calculate NCI at acquisition: fair value (full method) or NCI % × net assets (proportionate method).
5Compute goodwill: consideration + NCI − net assets. If negative, treat as a bargain purchase gain after reassessment.
6Deduct any impairment to date. Under the full method, split it between parent and NCI.
7Carry goodwill into the consolidated statement of financial position and the impairment into retained earnings and NCI as the method requires.

Quickest way: Goodwill proforma in four lines

When to use it: Use it in Section A and B objective questions where you must reach one number fast.

Write: Consideration. Then NCI. Then minus net assets at acquisition.
Add fair value uplifts to net assets before you subtract.
Check which NCI method applies before you calculate NCI.
Sense-check: a higher fair value uplift always reduces goodwill.

Common mistakes in Goodwill and Fair Value Adjustments at Acquisition

Using net assets at the year end instead of at acquisition.
The statement of financial position given shows current reserves, and students use the first figure they see.
Fix: Always use reserves at the acquisition date from the question. Post-acquisition reserves belong in the retained earnings working.
Ignoring the fair value adjustment or applying it only once.
Students treat the uplift as a one-off entry and forget its effect on depreciation and on net assets at acquisition.
Fix: Include the uplift in net assets at acquisition, and adjust depreciation or later disposal effects in post-acquisition profit.
Adding acquisition costs to the consideration.
Older rules capitalised them, and students remember this.
Fix: Under IFRS 3, expense acquisition-related costs. Share issue costs go against equity.
Using the proportionate method NCI when the question gives a share price.
Students default to the simpler method.
Fix: If the question states NCI fair value or a price per share for the NCI, use the full method. Read the requirement for a stated policy.
Treating the whole impairment as the group's loss under the full method.
Students forget that goodwill includes the NCI's share.
Fix: Under the full method, allocate the impairment between parent and NCI by their shareholdings. Under the proportionate method, only the parent's share of goodwill exists, so only that is impaired.
Recognising negative goodwill as a liability.
Students carry the sign through the working.
Fix: Reassess the measurement first, then credit any remaining excess to group profit or loss as a bargain purchase gain.

Worked examples

Example 1

Pine acquired 80% of Oak on 1 January for $5,000,000 cash. At that date Oak's share capital was $1,000,000 and retained earnings $3,000,000. Oak's land had a fair value $400,000 above its carrying amount. The fair value of the NCI was $1,100,000. Calculate goodwill under both the full and the proportionate methods.

Show the solution

Net assets at acquisition: 1,000,000 + 3,000,000 + 400,000 = $4,400,000.
Full method: 5,000,000 + 1,100,000 − 4,400,000 = $1,700,000.
Proportionate method NCI: 20% × 4,400,000 = $880,000.
Proportionate goodwill: 5,000,000 + 880,000 − 4,400,000 = $1,480,000.
Difference: 1,700,000 − 1,480,000 = $220,000, which is the NCI's share of goodwill.

Answer: Full method goodwill is $1,700,000. Proportionate method goodwill is $1,480,000.

Example 2

Using the data above (full method, goodwill $1,700,000), the group tests goodwill at the year end and finds the recoverable amount of the Oak cash-generating unit including goodwill is $5,600,000. The carrying amount of Oak's net assets including the land uplift at the year end is $4,700,000. Calculate the impairment and its allocation.

Show the solution

Carrying amount of the unit including goodwill: 4,700,000 + 1,700,000 = $6,400,000.
Recoverable amount is $5,600,000.
Impairment: 6,400,000 − 5,600,000 = $800,000, charged first against goodwill.
Goodwill after impairment: 1,700,000 − 800,000 = $900,000.
Allocation under the full method: parent 80% × 800,000 = $640,000; NCI 20% × 800,000 = $160,000.

Answer: Impairment is $800,000, leaving goodwill of $900,000. The group retained earnings bear $640,000 and NCI bears $160,000.

Exam tips

Read whether the question says full or proportionate before doing any numbers. It changes NCI and the impairment split.
In objective test cases, write the goodwill working once and reuse it for every question on the scenario.
Always check for a fair value adjustment in the notes. It is the most commonly missed item.
In Section C, show the goodwill working separately with clear labels so you earn method marks even if one figure is wrong.

Practice questions from Preparation of consolidated financial statements for a simple group

Goodwill and Fair Value Adjustments at 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 and Fair Value Adjustments at Acquisition: frequently asked questions

What is the difference between full goodwill and partial goodwill?

Full goodwill measures NCI at fair value, so goodwill includes the NCI's share. Partial (proportionate) goodwill measures NCI at its share of net assets, so it only includes the parent's share. Full goodwill is usually larger.

Is goodwill amortised under IFRS?

No. Goodwill is not amortised. It is tested for impairment at least once a year, and any impairment loss is never reversed.

How do I treat a bargain purchase?

First check that all assets, liabilities and consideration were identified and measured correctly. If net assets still exceed consideration plus NCI, recognise the excess as a gain in profit or loss on the acquisition date.

How are fair value adjustments treated after acquisition?

They are included in net assets at acquisition. After that, extra depreciation on an uplifted depreciable asset reduces post-acquisition profits, and the uplift is adjusted in the consolidated statement of financial position.