Goodwill on acquisition

Seeking clarity on when goodwill is recognised and how

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Hello,

My understanding of goodwill when a parent acquires a subsidiary is as follows:

In the single entity the cost of acquisition will be shown as investment. Upon consolidation, this investment will be removed and replaced with the assets and liabilities of the subsidiary, with the difference being recognised as goodwill.

My confusion comes from the fact that in some single entity accounts (where the parent has a sub) I have seen goodwill being recognised. As above, I was under the impression that goodwill was a consolidation adjustment. Is there scope to recognise subsidiary goodwill in single entity accounts if you are not producing consolidated accounts? And/or is it a case of them directly buying the goodwill of a company.

I would appreciate if somebody could clear up my confusion.

Many thanks

Replies (4)

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By johngroganjga
06th Sep 2018 08:07

It must be the latter.

Or rather it should only be the latter. It’s not beyond the bounds of possibility that some accountants who don’t know what they are doing split the cost of investments in a holding company’s solus accounts between the element that reflects the value of the subsidiary’s net assets on acquisition and goodwill.

Thanks (1)
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By GW
06th Sep 2018 09:45

"My confusion comes from the fact that in some single entity accounts (where the parent has a sub) I have seen goodwill being recognised."

Have you considered the posiblilty that the goodwill in the subsidiary comes from a different acqusition? For example, Company acquires business from sole trader, then later the company is bought by parent

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Replying to GW:
By johngroganjga
06th Sep 2018 12:50

GW wrote:

Have you considered the possiblity that the goodwill in the subsidiary comes from a different acquisition? For example, Company acquires business from sole trader, then later the company is bought by parent

I think the OP is referring to having seen goodwill in the unconsolidated accounts of holding companies.

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Replying to GW:
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By Ed100
06th Sep 2018 19:35

Ok, I had not really considered that. So if a parent acquires a sub which has goodwill from buying a sole trader, this goodwill will be recognised in the parent's single entity (non consolidated) accounts? While the goodwill in relation to the acquisition on sub can't be recognised until consolidation.

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