Company X acquires Company Y for ₹350 crores. The fair value of identifiable tangible assets is ₹200 crores, fair value of identifiable intangible assets (excluding goodwill) is ₹30 crores, and liabilities are ₹20 crores. Determine the goodwill arising from the transaction and classify the goodwill as an asset under the Indian GAAP.
Answer
₹100 crores; Goodwill is an intangible asset and is not amortised but tested for impairment.
The correct answer is ₹100 crores; Goodwill is an intangible asset and is not amortised but tested for impairment. — Thus goodwill is ₹140 crores and is recorded as an intangible asset, with future impairment testing required.
Step-by-step solution
- Compute the net identifiable assets: Tangible assets ₹200 crores + Intangible assets ₹30 crores – Liabilities ₹20 crores = ₹210 crores.
- Subtract net identifiable assets from consideration to find goodwill: ₹350 crores – ₹210 crores = ₹140 crores.
- Correct the arithmetic: ₹350 crores – ₹210 crores actually equals ₹140 crores. (Note: Re‑calculate to verify.)
- Under IAS 38, goodwill is classified as an intangible asset.
- Indian GAAP specifies that goodwill is not amortised but must be tested for impairment whenever an indicator is present.
- Thus goodwill is ₹140 crores and is recorded as an intangible asset, with future impairment testing required.
Common mistake: Treating goodwill as a tangible asset or forgetting to subtract liabilities
Concept tested: Recognition of goodwill and classification
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