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there is a note in a question like- subsidiary was successful in applying for a six-year licence to dispose of toxic waste, just prior to its acquisition. The licence was worth $180,000 at the date of acquisition. Amortization is to be charged to cost of sales.
And my question is what will happen in net asset working of subsidiary at date of acquisition and date of reporting
And another question if question gives me impairment of goodwill in notes and my goodwill is negative, is that possible!
“And my question is what will happen in net asset working of subsidiary at date of acquisition and date of reporting”
If the question tells you that the licence is worth $180,000 as at date of acquisition, and that this figure has not been recorded by the subsidiary, then that’s the value that should be included within the figure “Fair value of subsidiary’s net assets at date of acquisition” in the goodwill calculation
As at reporting date, again the figure of $180,000 should be brought in but this time you need to amortise that licence value of $180,000 by the appropriate proportion of $30,000 ($180,000 / 6 years) according to the number of post-acquisition months
“And another question if question gives me impairment of goodwill in notes and my goodwill is negative, is that possible!”
If you reach this position in the exam, you need to think seriously about the figures you have incorporated into your goodwill calculation
ACCA consistently say “Questions are never set to trick candidates and questions should be taken at their face value”
If you have reached a negative goodwill figure and the notes to the answer talks about goodwill being impaired, it is most probable that you have made an error in that goodwill calculation
But don’t waste too much time going searching for the error – it MAY be obvious, in which case, correct it.
If it isn’t obvious, leave it!
Make a note to the examiner / marker along the lines of:
“The question indicates that goodwill should be impaired by (say) $40,000. Goodwill as calculated is negative so impairment is irrelevant to the calculated amount. If it had been positive, the $40,000 would have been deducted from the goodwill as calculated and allocated to the group (say) 75% and nci 25%”
In that way, although you have lost the mark for making an error in the calculation, you will not lose the mark for knowing the correct treatment of goodwill impairment
OK?
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