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Definition:
Goodwill is an intangible asset which arises from the process of acquisition of controlling interest in another business entity. Goodwill is a component of the acquisition cost which is the excess payment made for a controlling portion in business entity, over and above the assignable portion of fair value of the acquired business entity as at date of stake acquisition.
Goodwill is subject to Impairment and is to be tested on annual basis or on more frequent periods, in case there are signs of deteroriation in the functioning or performance of the acquired entity. Impairment of the Goodwill is assessed based on Cash Generating Unit (CGU) level. Goodwill is not subject to annual depreciation or amortisation.
Goodwill can be recognised with two methods: (i) partial goodwill (only to the extent of ownership of the controlling entity and (ii) full goodwill (entire goodwill for the entity). In partial goodwill method, initial value of minority interest is considered at net book value belonging to the minority interest and in full goodwill method, initial value of minority interest is considered at fair value of acquired entity belonging to the minority interest.
Accounting Entries:
Standalone Financial Statements:
In the Standalone Financial Statements of the Investor Company, the investment in subsidiary is accounted at cost and no Goodwill is present.
Consolidated Financial Statements:
Line-by-line consolidation:
Subsidiaries Assets* DR
Goodwill on Consolidation A/c DR
Investment in Subsidiaries A/c CR
Minority Interest A/c CR
Subsidiaries Liabilities* CR
Amount: (*) Line-by-line consolidation takes place in case of subsidiaries and all assets and liabilities are taken over for reporting purpose. Minority interest is portion of share pertaining to outside shareholders.