How is goodwill calculated under the full and partial goodwill methods in IFRS 3?

Under IFRS 3 Business Combinations, an acquirer measures goodwill as the excess of the consideration transferred plus any non-controlling interest (NCI) over the fair value of the acquiree's identifiable net assets — with a policy choice at each acquisition between the full goodwill method (NCI at fair value) and the partial goodwill method (NCI at its proportionate share of net identifiable assets). - Recognition trigger (IFRS 3.32): Goodwill is recognised only on acquisition of a business. It is measured at the acquisition date and represents future economic benefits from assets that cannot be individually identified and separately recognised. - Full goodwill method (IFRS 3.19 option): NCI is measured at fair value, typically derived from market price or valuation technique. This grosses up both goodwill and NCI on the balance sheet. The full goodwill figure includes the NCI's share of goodwill — sometimes called "notional goodwill" attributable to minority shareholders. - Partial goodwill method (IFRS 3.19 option): NCI is measured at its proportionate share of the acquiree's identifiable net assets (i.e., NCI% × fair value of net assets). Only the parent's share of goodwill is recognised; no goodwill is attributed to NCI. - Goodwill formula — Full method: Goodwill = (Consideration transferred + Fair value of NCI + Fair value of previously held equity) − Fair value of identifiable net assets (IFRS 3.32)

Under IFRS 3, how is goodwill affected when contingent consideration is remeasured after the measurement period closes?

- Goodwill formula — Partial method: Goodwill = (Consideration transferred + NCI at proportionate share) − Fair value of identifiable net assets - Subsequent measurement and impairment (IAS 36.80–81): Goodwill is allocated to cash-generating units (CGUs) and tested for impairment annually. Under full goodwill, the entire CGU carrying amount (including NCI goodwill) is compared to recoverable amount. Under partial goodwill, the CGU must be grossed up notionally before impairment testing to ensure comparability — a critical procedural difference. - No amortisation (IAS 38.107 / IFRS 3.BC131): Goodwill is not amortised under IFRS; it is subject solely to annual impairment review. Scenario: Alpha acquires 80% of Beta. Consideration paid: €800,000. Fair value of Beta's identifiable net assets: €750,000. Fair value of NCI (20%): €180,000. Proportionate NCI: 20% × €750,000 = €150,000. Full goodwill method: Goodwill = (€800,000 + €180,000) − €750,000 = €230,000 NCI on balance sheet = €180,000

If an acquirer holds a 30% pre-existing interest in the acquiree, how is previously held equity interest measured and how does it feed into the goodwill calculation under IFRS 3.42?

- Misapplying the policy choice: IFRS 3.19 permits the NCI measurement choice transaction by transaction, not as a blanket entity-wide policy. Auditors regularly find entities that assume one method applies to all acquisitions, which is non-compliant — each acquisition can use a different method. - Contingent consideration mistreatment: Including earn-out arrangements at nominal rather than fair value in the consideration transferred inflates or deflates goodwill at inception (IFRS 3.39). Subsequent changes to contingent consideration classified as a liability are remeasured through profit or loss, not as a goodwill adjustment (IFRS 3.58). - IFRS 3.19 — Policy choice for measuring NCI at fair value (full) or proportionate share (partial) - IFRS 3.32 — Goodwill recognition and measurement formula at acquisition date - IFRS 3.39 / 3.58 — Fair value measurement and subsequent accounting for contingent consideration - IAS 36.80 — Allocation of goodwill to CGUs for impairment testing purposes - IAS 36.C4–C7 — Grossing-up procedure for partial goodwill in CGU impairment tests

IFRS 3 Goodwill — Full vs Partial Method

IFRS 3 Goodwill — Core Rule

Under IFRS 3 Business Combinations, an acquirer measures goodwill as the excess of the consideration transferred plus any non-controlling interest (NCI) over the fair value of the acquiree's identifiable net assets — with a policy choice at each acquisition between the full goodwill method (NCI at fair value) and the partial goodwill method (NCI at its proportionate share of net identifiable assets).

How IFRS 3 Goodwill Works

Recognition trigger (IFRS 3.32): Goodwill is recognised only on acquisition of a business. It is measured at the acquisition date and represents future economic benefits from assets that cannot be individually identified and separately recognised.

Full goodwill method (IFRS 3.19 option): NCI is measured at fair value, typically derived from market price or valuation technique. This grosses up both goodwill and NCI on the balance sheet. The full goodwill figure includes the NCI's share of goodwill — sometimes called "notional goodwill" attributable to minority shareholders.

Partial goodwill method (IFRS 3.19 option): NCI is measured at its proportionate share of the acquiree's identifiable net assets (i.e., NCI% × fair value of net assets). Only the parent's share of goodwill is recognised; no goodwill is attributed to NCI.

Goodwill formula — Full method:

Goodwill = (Consideration transferred + Fair value of NCI + Fair value of previously held equity) − Fair value of identifiable net assets (IFRS 3.32)

Goodwill formula — Partial method:

Goodwill = (Consideration transferred + NCI at proportionate share) − Fair value of identifiable net assets

Subsequent measurement and impairment (IAS 36.80–81): Goodwill is allocated to cash-generating units (CGUs) and tested for impairment annually. Under full goodwill, the entire CGU carrying amount (including NCI goodwill) is compared to recoverable amount. Under partial goodwill, the CGU must be grossed up notionally before impairment testing to ensure comparability — a critical procedural difference.

No amortisation (IAS 38.107 / IFRS 3.BC131): Goodwill is not amortised under IFRS; it is subject solely to annual impairment review.

IFRS 3 Goodwill — Practical Example

Scenario: Alpha acquires 80% of Beta. Consideration paid: €800,000. Fair value of Beta's identifiable net assets: €750,000. Fair value of NCI (20%): €180,000. Proportionate NCI: 20% × €750,000 = €150,000.

Full goodwill method

Goodwill = (€800,000 + €180,000) − €750,000 = €230,000

NCI on balance sheet = €180,000

Partial goodwill method

Goodwill = (€800,000 + €150,000) − €750,000 = €200,000

NCI on balance sheet = €150,000

Journal entry at acquisition date (Full goodwill method)

Account	Dr (€)	Cr (€)
Identifiable net assets (fair value)	750,000
Goodwill	230,000
Cash / Consideration payable		800,000
Non-controlling interests		180,000

Under the partial method, simply replace Goodwill with €200,000 and NCI with €150,000.

IFRS 3 Goodwill — Common Pitfalls

Impairment grossing-up omission: Under the partial goodwill method, practitioners frequently forget to gross up the CGU's carrying amount for the notional NCI goodwill before comparing to recoverable amount (IAS 36.C4–C7). Skipping this step understates the impairment loss allocated to the parent.

Misapplying the policy choice: IFRS 3.19 permits the NCI measurement choice transaction by transaction, not as a blanket entity-wide policy. Auditors regularly find entities that assume one method applies to all acquisitions, which is non-compliant — each acquisition can use a different method.

Contingent consideration mistreatment: Including earn-out arrangements at nominal rather than fair value in the consideration transferred inflates or deflates goodwill at inception (IFRS 3.39). Subsequent changes to contingent consideration classified as a liability are remeasured through profit or loss, not as a goodwill adjustment (IFRS 3.58).

IFRS 3 Goodwill — Key Paragraphs

IFRS 3.19 — Policy choice for measuring NCI at fair value (full) or proportionate share (partial)
IFRS 3.32 — Goodwill recognition and measurement formula at acquisition date
IFRS 3.39 / 3.58 — Fair value measurement and subsequent accounting for contingent consideration
IAS 36.80 — Allocation of goodwill to CGUs for impairment testing purposes
IAS 36.C4–C7 — Grossing-up procedure for partial goodwill in CGU impairment tests