Goodwill and its Calculation in Financial Statements

CONSOLIDATION 1
CONSOLIDATION

CONSOLIDATION 2
Question 1:
To: A
From: B
Re: Reporting of goodwill in the financial statements
Date: April 25, 2019
Question presented: goodwill and how the same is calculated and reported
Goodwill is defined as an asset which forms a part of an intangible asset. It arises when any
one company takes over another company since it is acquiring the business of the other
company.
Goodwill arises as and when once company take over another. The amount of the goodwill
calculated is the difference between the fair value of the identifiable assets and the liabilities
of the company and the costs of consideration at which the company has been taken over the
other company. The identifiable assets are of the target company and the purchase
consideration is of the parent which is taking over the target company. This is the market
price or the fair values of all of the assets and the liabilities taken together. The total amount
of the goodwill is generally adjusted to the smaller amount in case there is an impairment loss
of the company which has been acquired as on the date of the balance sheet. Generally, the
life of the goodwill is about 10 years and then impairment is calculated on it (Accounting
coach, 2019).
Goodwill arises when one company takes over the other company and which is of a greater
value and also contributes towards the purchase consideration at which the target company is
being acquired. Goodwill arises during the combination of the business when one company
takes over the company or one company which acquires the other which is of a greater value
and contributes to the consideration at which the company has been acquired.
The value of the target company is the net assets which is the difference between the assets
and the current liabilities of the company to the funds of the equity shareholders (Small
business chron, 2019).

CONSOLIDATION 3
This amount of goodwill calculated is reported under the head of “Intangible Assets” and is
added to the value of the goodwill, in the consolidated books of accounts. This total amount
of goodwill is then tested for impairment in each year and in case, the carrying value if less
than its recoverable value, then it is tested for impairment and any amount of impairment loss
is deducted from the amount of the goodwill, hence reducing the value of the goodwill.
Question 2:
Acquisition analysis:
At July 1, 2014
Fair value of identifiable
assets and liabilities of
Slang Ltd
2,80,800.0
0
4,200.0
0 Inventories
-
24,780.00 Plant and equipment
2,60,220.0
0
Consideration transferred
2,88,000.0
0
(Cash+market value
of shares- dividend
payable)
Goodwill
27,780.0
0
Pre-acquisition entries
Worksheet entries as at July 1, 2014: