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According to IFRS 3 , goodwill arising on purchase of a business can be shown in the SOFP of the acquirer company.
My question is, when a parent company acquires a subsidiary and pays more than its net assets are valued (i.e. goodwill is there) then why ,in the separate financial statements of the parent company, the purchase consideration is just shown as “Non current investment”? Why the goodwill is not shown separately?
Continuing the above question..
Why it is mandatory to present goodwill in the consolidated statements only and not in separate SOFP of parent company.?Hi,
In showing the investment figure in the parent’s accounts we do not get a true picture of the substance of the investment. As we control the subsidiary we prepare consolidated accounts based upon the substance, with the substance being that it isn’t one big group of companies owned and controlled by the shareholders of the parent.
The parent’s individual accounts just show the legal form of the investment.
So therefore the goodwill only exists in the group accounts as we just show the investment and nothing else in the parent’s books.
Thanks
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