Goodwill

Why does it matter in a group?

Goodwill appears in the group accounts when the price paid for a company, with any non-controlling interestNon-controlling interestThe share of a subsidiary's equity and profit that belongs to owners outside the group.Open the glossary entry and earlier stake, is more than the fair value of its identifiable net assets. It is worked out once, on the acquisition dateAcquisition dateThe date on which a parent obtains control of another company. The new subsidiary's results are included in the group accounts from this date.Open the glossary entry, and then tested for impairment each year. It is not amortised under IFRS.¹ For a foreign subsidiary, goodwill is held in the subsidiary’s currency and translated at the closing rateClosing rateThe spot exchange rate on the last day of the reporting period, used to translate a foreign subsidiary's assets and liabilities.Open the glossary entry each month.

A small example

Zenvara pays GBP 8,000,000 for 80 percent of a company whose identifiable net assets have a fair value of GBP 8,500,000. The non-controlling interest, at its share of net assets, is 20 percent of 8,500,000, which is 1,700,000. Goodwill is 8,000,000 plus 1,700,000 less 8,500,000, which is GBP 1,200,000.