Full Goodwill vs Partial Goodwill Method Essay Example

Full Goodwill versus Partial Goodwill Method

Full Goodwill versus Partial Goodwill Method


The accounting when an acquirer gets control of a particular business (for instance a merger) is summarized by the IFRS 3 Business Combinations (Greuning, Scott and Terblanche, 2011). Such like business combinations are explained suing the ‘method of acquisition’ that basically needs the acquired assets and assumed liabilities to be measured at fair values on the date of acquisition. Currently, in a less than 100% acquisition, a purchaser recognizes 100% of the particular assets as well as liabilities obtained and goodwill calculated to be like a residual that compares the consideration paid to the buyer’s interest in the particular assets and liabilities. Fortunately, IFRS 3R has introduced an alternative for the purchaser to value the minor (non-controlling) interest using two methods; full goodwill or partial goodwill (Greuning, Scott and Terblanche, 2011). What would actually influence a buyer to pick between the full goodwill and the partial goodwill method? This essay will therefore analyse methods of calculating goodwill by using either partial or full goodwill as well as give their advantages and disadvantages.

  1. Full Goodwill Method

In this particular method, goodwill is calculated as the difference that exists between the total fair value of the target organization and the fair value of its identifiable assets (Neuhausen, Schlank and Pippin, 2007). This method is mandatorily needed by the United States GAAP but is permitted just as an alternative by the IFRS (apart from partial goodwill method). Full goodwill entails valuing the non-controlling or minor interest at fair value and therefore realizing goodwill on the non-controlling share.

The full goodwill method has various advantages over the partial goodwill method. First and foremost, the realization of full goodwill increases equity at the date of acquisition. The method increases the reported net assets on the balance sheets and this implies that any future goodwill impairment shall actually be greater (Neuhausen, Schlank and Pippin, 2007). Even though the measurement of the non-controlling interest at fair value might be challenging, goodwill impairment evaluation might be simpler when one utilizes full goodwill since the grossing-up of goodwill for the partly owned subsidiaries in not a must. In addition, it would minimize any possible decrease in the control of equity which might result from the consequent buyout of the minority or non-controlling interest. Lastly, full goodwill is also the most appropriate for organizations having a weak foundation and /or a great gearing level (Neuhausen, Schlank and Pippin, 2007).

If one uses the full goodwill method in an impairment test, the impairment loss charged to loss or profit is usually higher for an entity that chooses to use the fair value technique. There shall nearly always be a variation in the impairment figure established using the two methods (full or partial goodwill method). However, under the full goodwill method, the impairment loss if fully recognized (Neuhausen, Schlank and Pippin, 2007).

Nonetheless, this particular method also has some disadvantages associated with it. First, the measurement of the fair value of the minority or non-controlling interest might call for the application of complex methods of evaluation (Neuhausen, Schlank and Pippin, 2007). Secondly, any consequent impairment charge is greater in comparison to the partial goodwill method, having negative effect on the reported operated outcomes.

  1. Partial Goodwill Method

In this particular method, goodwill is usually calculated as the difference that exists between the acquisition consideration paid and the buyer’s share of the net identifiable assets (Epstein, Nach and Bragg, 2009). In this particular goodwill method, it is only the share of the acquirer of goodwill that is known. The calculation of goodwill using the full goodwill methods surpasses calculating goodwill using the partial goodwill method by the non-controlling (minority) interest goodwill share.

The goodwill method is not permitted under the United States GAAP; however, it is permitted as an alternative under the IFRS (apart from full goodwill method). The partial goodwill method is different from the full goodwill method only in circumstances whereby the investment by the acquirer is not more than 100% (Epstein, Nach and Bragg, 2009). In this method, the purchaser values the non-controlling (minority) interest at the minority’s fair share of the net identifiable assets. It can also be referred to as a residual method. This method is, however, not commonly used like the full goodwill method.

The partial goodwill method also has some advantages associated with it which make it suitable for use instead of the full goodwill method. First and foremost, any consequent impairment charge is considerably lower compared to that in full goodwill method. This positively affects the reported outcomes (Epstein, Nach and Bragg, 2009).

A disadvantage of this method is that only the impairment share of the holding company is realized in loss or profit due to the fact that it is also only the goodwill share of the company that is recognized. In the full goodwill method, the impairment loss is fully recognized. In addition, the measurement of goodwill impairment is more difficult while utilizing this method than in full goodwill method (Epstein, Nach and Bragg, 2009). This makes this method to be rarely used by organizations.


Inn conclusion, the choice to use full goodwill or partial goodwill method all depends with an organization and what it actually wants obtain at the end of the measurement. Both methods have their own pros and cons, but full goodwill method has proven to be a better method to apply. It is simpler to use and the impairment loss if fully recognized.


Epstein, B., Nach, R & Bragg, S 2009, Wiley GAAP, Hoboken, N.J., Wiley.

Greuning, H., Scott, D & Terblanche, S 2011, International financial reporting standards, Washington, D.C., World Bank.

Neuhausen, B., Schlank, R and Pippin, R 2007, 2008 CCH accounting for business combinations, goodwill, and other intangible assets, Chicago, IL., CCH.