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ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation

Kestrel Co acquired 100% of the net assets of Finch Co for $900,000 cash. The fair values of Finch's identifiable net assets were: property $500,000, inventory $120,000, receivables $80,000 and payables $50,000. What goodwill arises and how is it subsequently treated under IFRS?

Goodwill is $250,000, being the $900,000 consideration less identifiable net assets at fair value of $650,000. Under IFRS purchased goodwill is not amortised; instead it is reviewed for impairment at least annually.

  1. A$250,000, amortised over its useful life
  2. B$250,000, tested annually for impairment and not amortisedCorrect
  3. C$200,000, tested annually for impairment and not amortised
  4. D$350,000, tested annually for impairment and not amortised

Explanation

Net assets = 500,000 + 120,000 + 80,000 - 50,000 = 650,000. Goodwill = 900,000 - 650,000 = 250,000. Under IFRS 3/IAS 36 purchased goodwill is not amortised but tested for impairment annually. Option 200,000 ignores the payables being deducted... actually it arises from mistakes in net assets, and amortising is wrong under IFRS.

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