Corporate Financial Reporting · Accounting for Business Combination and Restructuring

Purchase Consideration and Goodwill under Ind AS 103

Updated 11 October 2026 · Fact-checked

Under Ind AS 103, goodwill is the excess of (consideration transferred + non-controlling interest + fair value of any previously held interest) over the net identifiable assets acquired, all at acquisition-date amounts. If the result is negative, it is a bargain purchase. You recheck the measurements first, then recognise the gain.

Understand Purchase Consideration and Goodwill

When one company gains control of a business, Ind AS 103 requires the acquisition method. You identify the acquirer, fix the acquisition date, recognise and measure the identifiable assets, liabilities and non-controlling interest, and then measure goodwill or a bargain purchase gain.

Purchase consideration is what the acquirer gives to get control. It includes cash, other assets transferred, liabilities incurred and shares issued. Generally it is measured at acquisition-date fair value. Deferred payments are discounted to present value. Contingent consideration is included at fair value. Acquisition-related costs such as legal and advisory fees are not part of consideration. They are expensed.

The acquiree's assets and liabilities are not taken at book value. You recognise identifiable assets and liabilities separately from goodwill, at acquisition-date amounts as the standard requires. This often means adding assets that were never on the acquiree's books, such as a brand or customer relationships. It can also mean restating land or plant to fair value.

Non-controlling interest (NCI) is the equity in a subsidiary not attributable, directly or indirectly, to the parent. If the acquirer buys less than 100%, NCI goes into the goodwill calculation. The choice of basis applies to NCI that are present ownership instruments entitling their holders to a proportionate share of the acquiree's net assets on liquidation. For these, the acquirer measures NCI either at fair value or at its proportionate share of the acquiree's identifiable net assets. Other components of NCI are measured at fair value unless an Ind AS requires another basis. The first choice gives full goodwill. The second gives only the parent's share.

Goodwill is a residual. It is what you paid, plus NCI, over the fair value of what you got. If the residual is negative, the deal is a bargain purchase. You must not book the gain straight away. You first reassess whether all assets and liabilities were identified and whether the measurements are right.

In exam problems, you may see the consideration worked out by the net payment method (add up what the acquirer actually pays or issues) or the net asset method (value of assets taken over less liabilities taken over). These are conventions carried over from older AS 14 practice. Ind AS 103 does not name or recognise either as a method. Under Ind AS 103, consideration is the acquisition-date fair value of what the acquirer transfers. Use the approach the question's wording points to, and check the result against that principle.

Key rules to remember

Goodwill (paragraph 32): Goodwill = [Consideration transferred + NCI + Fair value of previously held interest] − Net identifiable assets acquired (assets − liabilities, acquisition-date amounts); A positive result is goodwill. A negative result is a bargain purchase, after the review in paragraph 36.
Purchase consideration (net payment approach): Consideration = Cash + Fair value of other assets transferred + Fair value of shares issued + Fair value of contingent consideration + Present value of deferred payments; This follows the Ind AS 103 principle: acquisition-date fair value of what is transferred. Exclude acquisition-related costs.
Purchase consideration (net asset approach): Consideration = Value of assets taken over − Liabilities taken over; An older AS 14-style convention, not an Ind AS 103 method. Use it only when the question says the acquirer takes over specified assets and liabilities and pays their net value.
NCI at proportionate share: NCI = NCI % × Acquisition-date amounts of the acquiree's identifiable net assets (recognised and measured under Ind AS 103); This option gives goodwill attributable to the parent only. Some items are not measured at fair value under Ind AS 103, so do not assume fair value for every item.
NCI at fair value: NCI = Acquisition-date fair value of the shares held by non-controlling shareholders; This option gives full goodwill, including the NCI's share.
Business combination achieved in stages: Add acquisition-date fair value of the acquirer's previously held equity interest to the goodwill calculation; This is paragraph 32(a)(iii). The old stake is remeasured at acquisition date.
Four steps of the acquisition method (paragraph 5): Identify acquirer → Fix acquisition date → Recognise and measure assets, liabilities and NCI → Measure goodwill or bargain purchase gain; Use this as your answer outline.
Bargain purchase gain: Gain = Net identifiable assets acquired − (Consideration + NCI + Previously held interest), when positive; Recognise only after reassessing identification and measurement (paragraph 36).

How to solve Purchase Consideration and Goodwill questions

Use this order for any question on consideration, goodwill or bargain purchase. It works for 100% and partial acquisitions.

1Identify the acquirer and the acquisition date. Use only acquisition-date values.
2Compute purchase consideration: cash, fair value of shares issued, other assets transferred, discounted deferred payments and contingent consideration at fair value. Leave out acquisition costs and expense them.
3Prepare a fair value table of the acquiree's identifiable assets and liabilities. Replace book values with fair values. Add unrecorded identifiable assets such as brands, and add liabilities that qualify for recognition. Exclude any goodwill already in the acquiree's books.
4Compute net identifiable assets (assets − liabilities).
5Measure NCI as the question directs, either at fair value or at proportionate share of net identifiable assets. If the acquirer already held shares, bring in their fair value.
6Apply the formula: (consideration + NCI + previously held interest) − net identifiable assets.
7If positive, record goodwill. If negative, state that you have reassessed identification and measurement, then recognise the bargain purchase gain as the Ind AS requires.
8Pass the journal entry or show the consolidated figures, and mention any provisional amounts that may be adjusted in the measurement period.

Quickest way: One-line goodwill check

When to use it: Use it in the 2-mark MCQs, or to check a long numerical before you write the final answer.

Write the total of what is given: consideration + NCI + old stake at fair value.
Write the net fair value of the acquiree's identifiable assets and liabilities.
Subtract the second from the first. Positive means goodwill. Negative means bargain purchase.
Check that you did not use book values, acquisition costs or the acquiree's old goodwill.
For partial acquisitions, check the NCI basis before you finalise.

Common mistakes in Purchase Consideration and Goodwill

Using the acquiree's book values instead of fair values for net assets.
The balance sheet is in front of you, and the fair value adjustments are tucked into the question's notes.
Fix: Rebuild the net asset figure from the fair value notes before you touch the goodwill formula. Put adjustments in a table.
Including legal or advisory fees in purchase consideration.
Students think every acquisition cost is part of the price paid.
Fix: Acquisition-related costs are expensed. Only what is transferred to the sellers goes into consideration.
Ignoring contingent consideration or deferred payment.
Only cash and shares paid on the day feel like 'real' consideration.
Fix: Include contingent consideration at fair value and deferred payments at present value.
Adding NCI at the wrong value or not adding it at all.
Students forget that NCI is part of paragraph 32(a), or they mix the two measurement bases.
Fix: Read the question for the NCI basis. Proportionate share of net identifiable assets gives parent-only goodwill. Fair value of NCI gives full goodwill.
Crediting a bargain purchase gain straight to profit and loss without any review.
Students treat a negative balance as simple income.
Fix: State that you first reassess identification and measurement (paragraph 36). After that review, recognise the bargain purchase gain as the Ind AS requires.
Carrying over the acquiree's existing goodwill as an identifiable asset.
It appears among the assets on the acquiree's balance sheet.
Fix: Exclude it. Goodwill is measured afresh as a residual.

Worked examples

Example 1

Alpha Ltd acquires 100% of Beta Ltd on 1 April. It pays ₹40,00,000 in cash and issues 2,00,000 equity shares of ₹10 each, fair value ₹25 per share. It also agrees to pay additional consideration if certain profit targets are met, with a fair value of ₹5,00,000 at the acquisition date. Legal and advisory costs paid are ₹2,00,000. Fair values of Beta's identifiable assets are: property, plant and equipment ₹70,00,000, inventory ₹30,00,000, receivables ₹20,00,000, and an unrecorded brand ₹10,00,000. Liabilities assumed are ₹40,00,000. Compute purchase consideration and goodwill, and state the treatment of the legal costs.

Show the solution

Cash = ₹40,00,000.
Shares issued = 2,00,000 × ₹25 = ₹50,00,000.
Contingent consideration at fair value = ₹5,00,000.
Purchase consideration = 40,00,000 + 50,00,000 + 5,00,000 = ₹95,00,000.
Identifiable assets = 70,00,000 + 30,00,000 + 20,00,000 + 10,00,000 = ₹1,30,00,000.
Net identifiable assets = 1,30,00,000 − 40,00,000 = ₹90,00,000.
There is no NCI and no previously held interest.
Goodwill = 95,00,000 − 90,00,000 = ₹5,00,000.
Legal and advisory costs of ₹2,00,000 are not part of consideration. They are expensed.

Answer: Purchase consideration is ₹95,00,000 and goodwill is ₹5,00,000. The ₹2,00,000 acquisition costs are expensed.

Example 2

Prime Ltd acquires 80% of the equity shares of Sub Ltd for ₹1,20,00,000 cash. Fair value of Sub's identifiable net assets is ₹1,40,00,000. The fair value of the 20% held by non-controlling shareholders is ₹32,00,000. (a) Compute goodwill if NCI is measured at proportionate share of net identifiable assets. (b) Compute goodwill if NCI is measured at fair value. (c) If Sub's identifiable net assets were instead ₹1,70,00,000 and NCI is measured at proportionate share, what is the position?

Show the solution

(a) NCI = 20% × 1,40,00,000 = ₹28,00,000.
Goodwill = 1,20,00,000 + 28,00,000 − 1,40,00,000 = ₹8,00,000.
(b) NCI = ₹32,00,000.
Goodwill = 1,20,00,000 + 32,00,000 − 1,40,00,000 = ₹12,00,000.
The difference of ₹4,00,000 is the goodwill attributable to NCI (32,00,000 − 28,00,000).
(c) NCI = 20% × 1,70,00,000 = ₹34,00,000.
Consideration + NCI = 1,20,00,000 + 34,00,000 = ₹1,54,00,000.
This is less than net identifiable assets of ₹1,70,00,000, so it is a bargain purchase of ₹16,00,000.
Before recognising the gain, Prime must reassess whether it has identified all assets and liabilities and reviewed the measurement of assets, liabilities, NCI and consideration.

Answer: (a) Goodwill is ₹8,00,000. (b) Goodwill is ₹12,00,000. (c) There is a bargain purchase of ₹16,00,000, recognised only after the reassessment and review required by paragraph 36.

Exam tips

In MCQs, check the NCI basis first. Many wrong options come from using the wrong basis.
Always show the fair value table and the consideration build-up separately. Marks are awarded for each component.
If the question gives a bargain purchase, write one line on the reassessment before showing the gain. Examiners look for it.
Write the formula before the numbers. Name the items (consideration, NCI, net identifiable assets) so partial marks are secured even if one figure is wrong.
Read case scenarios for traps: acquisition costs, existing goodwill in the acquiree's books, deferred or contingent payments, and a previously held stake.

Practice questions from Accounting for Business Combination and Restructuring

Purchase Consideration and Goodwill in other exams

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

Purchase Consideration and Goodwill: frequently asked questions

What is the difference between the net asset method and the net payment method?

The net payment approach adds up what the acquirer actually pays: cash, shares and other consideration. The net asset approach derives the price as the value of assets taken over less liabilities taken over. Both are conventions from older AS 14 practice that still appear in exam problems. Ind AS 103 does not recognise either as a method. Under it, consideration is the acquisition-date fair value of what is transferred.

What is the difference between goodwill and a bargain purchase?

Goodwill arises when consideration plus NCI plus any previously held interest exceeds the net identifiable assets acquired. A bargain purchase arises when it falls short. In that case you must reassess and review the measurements before you recognise any gain.

Are acquisition costs part of purchase consideration?

No. Fees paid to lawyers, advisers and valuers for the deal are expensed. Only amounts transferred to the sellers, measured at fair value, form consideration.

Can goodwill be adjusted after the acquisition date?

Yes, within the measurement period. The acquirer may adjust provisional amounts during this period while it obtains the information needed to measure assets, liabilities, NCI, consideration and the resulting goodwill or gain, as of the acquisition date.