NOTE 1

According to MFRS3, Goodwill is defined as “an asset representing the future

economic benefits arising from other assets acquired in a business combination that
are not individually identified and separately recognized”. Goodwill is computed by
comparing the amount of cost of investment and the non-controlling interest against
the fair value of net assets in the acquired company. The positive figure after
comparison is goodwill. Goodwill will be recognized as intangible asset in
consolidated statement of financial position. Whereas the negative figure after
comparison is bargain purchase. Bargain purchase is treated as income and will not be
recognized in consolidated statement of financial position.

Cost of investment is measured at fair value. It comprises cash, equity shares issued
by the investor (new shares or shares exchange), debentures issued by the
investor,deferred payment and contingent consideration. The non-controlling interest
can be measured either at fair value or proportionate share of the acquiree’s net assets.

In this case, the ordinary shares acquired by H-One Bhd is 75% and the non-
controlling interest own 25%. Hence, the non-controlling interest should be included
in the goodwill computation and recognise in partial goodwill. It should be calculated
as the fair value of net asset of Severe Bhd multiplied by 25%.

The internally generated brand in Severe Bhd which was not recognised by Madam
Kira-kira will reduce the net worth of Severe Bhd when the date of acquisition. It
should be included in the goodwill computation and capture as a fair value adjustment
downwards. The FVA- for the brand should be RM2,000,000.

The deferred consideration calculation should be as follows:

2,000,000 x 1/ (1+0.06)3= RM1,679,239
Hence, the journal entry is:(in RM)
Dr Cost of investment 1679239
Dr Group retained profit-finance charge 100754
Cr Deferred payment 1779993
NOTE 2
According to MFRS3, Goodwill is defined as “an asset representing the future
economic benefits arising from other assets acquired in a business combination that
are not individually identified and separately recognized”. Goodwill is computed by
comparing the amount of cost of investment and the non-controlling interest against
the fair value of net assets in the acquired company. The positive figure after
comparison is goodwill. Goodwill will be recognized as intangible asset in
consolidated statement of financial position. Whereas the negative figure after
comparison is bargain purchase. Bargain purchase is treated as income and will not be
recognized in consolidated statement of financial position.

Cost of investment is measured at fair value. It comprises cash, equity shares issued
by the investor (new shares or shares exchange), debentures issued by the
investor,deferred payment and contingent consideration. The non-controlling interest
can be measured either at fair value or proportionate share of the acquiree’s net assets.

The share exchange amount is incorrect. The calculation should be: 7,200,000/3 x 2 x
RM3.20= RM15,360,000

In this case, the ordinary shares acquired by H-One Bhd is 80% and the non-
controlling interest own 20%. Hence, the non-controlling interest should be included
in the goodwill computation and recognise in partial goodwill. It should be calculated
as the fair value of net asset of Severe Bhd multiplied by 20%.
The resulting additional depreciation on the FVA+ property is a post-acquisition
adjustment. It should not be included in the computation of goodwill.