The International Accounting Convergence Process on Consolidated Financial Statement: Risks and Opportunities Adopting Full Goodwill Method

Historically, goodwill has been recorded only when paid for, because of its ambiguity and the associated difficulty of archieving a reliable measurement absent a transaction. Goodwill is too “hypothetical” to extrapolate its value and extent to non-controlling interests. The acquisition value would be the fair value of the acquiree as a whole, not the price paid for the acquisition. Therefore, goodwill would not be an extension of goodwill “paid for” but rather would be the excess of the fair value of the acquiree as a whole over the fair value of its identifiable net assets. Theoretically, this should provide a sounder base for measuring goodwill than one based on the residual payment. There should be some distortion associated with factors that affect the fair value of the purchase price as an embedded control premium.