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

Which statement about goodwill arising on an acquisition of a subsidiary is correct under IFRS?

Goodwill on acquiring a subsidiary is recognised in the consolidated statement of financial position as an intangible asset and is tested for impairment annually. It is not amortised under IFRS, and any bargain purchase gain is taken to profit or loss.

  1. AGoodwill is recognised as an expense in profit or loss in the year of acquisition
  2. BGoodwill is amortised over a maximum of 20 years
  3. CNegative goodwill is carried as a liability and released over five years
  4. DGoodwill is recognised as an intangible asset and tested for impairment annuallyCorrect

Explanation

Under IFRS 3, goodwill is capitalised as an intangible asset and reviewed for impairment annually under IAS 36, with no amortisation. A gain on a bargain purchase is recognised in profit or loss immediately after reassessment, not carried as a liability, and no 20-year maximum life applies.

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