Goodwill arising on consolidations is one form of purchased goodwill and is governed by IFRS 3. IFRS 3 requires that purchased goodwill should be capitalized in the consolidated balance sheet. The normal treatment to deal with goodwill arising on consolidation is therefore to calculate the value of goodwill and, then show it under „intangible non current assets „ in the consolidated balance sheet. IFRS 3 requires that goodwill must be verified each year for impairment.
Goodwill is likely to represent assets that do not meet the criteria for recognition in the financial statements (such as workforce), synergies that the acquiring entity expects to achieve, and overpayments.
Management will usually know which parts of the existing business are likely to benefit from the acquisition, as this would have been one of the considerations during the planning process. However, it is less likely that management’s expectations can be exactly mapped to the goodwill amount.