Goodwill

An approach to measuring goodwill in a business combination where goodwill is recognised for both the acquirer's share and the non-controlling interest's share, resulting in a higher total goodwill figure. Under ASC 805, the full goodwill method is mandatory for all business combinations.

The US GAAP standard governing the subsequent measurement of goodwill and other intangible assets after initial recognition in a business combination. ASC 350 requires annual impairment testing of goodwill and indefinite-lived intangible assets, permits an optional qualitative assessment before performing the quantitative impairment test, and provides guidance on the amortisation of finite-lived intangible assets.

The difference between a company's enterprise value and the value of assets that traditional lenders will accept as collateral. The collateral gap is particularly acute for knowledge-intensive businesses, where the majority of value is held in intangible assets — patents, software, brand equity, customer relationships, data — that conventional lending frameworks do not recognise as eligible security.

The time required for an investor to recover their initial investment from the cash flows generated by the acquired business or asset. Earnback period is a practical measure of investment risk, and for intangible-heavy acquisitions, it reflects how quickly acquired intangible assets begin generating measurable returns.

A first-time adopter is an entity that presents its first IFRS financial statements, as defined in IFRS 1, First-time Adoption of International Financial Reporting Standards. Its first IFRS financial statements are the first annual financial statements in which it adopts IFRS through an explicit and unreserved statement of compliance with IFRS.

In-process research and development (IPR&D) is a project acquired part-way through — bought as a standalone asset or picked up in a business combination — where the underlying work is incomplete at the acquisition date. Its treatment differs sharply from the same activity performed in-house, and the difference is a common source of confusion.

Internally generated brands are brand assets a business builds itself over time rather than acquiring them in a transaction. IAS 38.63 (IFRS) names a specific family — internally generated brands, mastheads, publishing titles and customer lists, together with items similar in substance — and does not permit their recognition as intangible assets.

A reduction in the reported value of an asset on the balance sheet, typically triggered by impairment testing that reveals the asset's carrying amount exceeds its recoverable amount. Goodwill and other intangible asset write-downs often signal that the expected future benefits from a prior acquisition or investment have not materialised.

How do you value a franchise agreement as an intangible asset?

Franchise agreements are valued using the income approach based on the present value of franchise fee income and royalty streams over the remaining agreement term, adjusted for renewal probability.

How do different jurisdictions treat tax amortisation of intangible assets?

Tax amortisation varies significantly: the US allows 15-year amortisation of Section 197 intangibles, the UK allows tax relief on acquired goodwill and IP, while many EU countries provide varying relief periods and rates.

What are the common mistakes in purchase price allocation?

Common PPA mistakes include failing to identify all intangible assets, using inappropriate discount rates, neglecting the WARA reconciliation, and missing the tax amortisation benefit.

How do you account for contingent consideration in a business combination?

Contingent consideration is recognised at fair value on the acquisition date as part of the purchase price, then remeasured at each reporting date with changes recognised in profit or loss under IFRS 3.