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acquired controlling interest. No matter the applied method, goodwill continues to be a
residual but it will be a different residual under IFRS 3 (R) if the full fair value method
is used as compared to the previous standard. This is partly because all of the
consideration, including any previously held interest in the acquired business, is
measured at fair value but it is also because goodwill can be measured in two different
ways.

The first approach is similar to the method under current IFRS. Goodwill is the
difference between the consideration paid and the purchaser's share of identifiable net
assets acquired. This is a “partial goodwill” method because the non-controlling interest
is recognized at its share of identifiable net assets and does not include any goodwill.

The revised IFRS 3 uses the term “consideration transferred” (replacing “cost of
the business combination”) which is sum of the acquisition date fair values of assets
transferred, liabilities incurred to seller and the equity interests issued, including
contingent consideration. It does not include acquisition-related costs, which are
recognized as expenses.

Goodwill can also be measured on a “full goodwill” basis, which means that
goodwill is recognized for the non-controlling interest in a subsidiary as well as the
controlling interest. Under the previous version of IFRS 3, NCI was recognized at their
share of net assets and did not include any goodwill. Full goodwill means that non
controlling interest and goodwill are both increased by the goodwill that relates to the
non-controlling interest. The IASB assessed the effect of adding this option to IFRS 3
(R) as being neutral, mainly because it is an option: entities can choose not to change
the measurement approach they use in present.

The question is when full or partial goodwill can be recognized. The standard
gives a choice for each separate business combination. An acquirer may either
recognize non-controlling interest in the subsidiary at fair value, which leads to 100% of
goodwill being recognized (full goodwill), or the acquirer can recognize non-controlling
interest measured at the non-controlling interest in net assets excluding goodwill. This
leads to goodwill being recognized only for the parent’s interest in the acquired entity,
the same as under current IFRS 3 (partial goodwill).

This choice only makes a difference in an acquisition where less than 100% of
the acquired business is purchased. Business combinations where the entire business is
acquired will result in goodwill being calculated in much the same way as it is under
IFRS 3.

Example 2: Initial measurement of goodwill based on IFRS 3 (Revised)

Considering the same example as previous, the minority interest was fair valued
at $45,000 mil.

Recognizing goodwill based on full goodwill method:

$ Mil

The fair value of the assets                       370,000

(-) The fair value of the liabilities(180,000)

= Identifiable net assets (fair value)                 190,000

(-) Non-controlling interest (fair value)(45,000)

= Net Assets acquired                           145,000

Goodwill on acquisition = 200.000 - 145,000 = $55,000 mil

It can be seen that goodwill is effectively adjusted for the change in the value of
the non-controlling interest which represents the goodwill attributable to the NCI.
(Note: As a reminding, the partial goodwill method may also be used based on IFRS 3 -
Revised).



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