When I’m doing my practice questions for CFA Level 1, I changed upon a question which states in the answer that “Goodwill is no longer considered an intangible asset under IFRS”.
Where could I find the source to validate this? I tried searching for this and it seems that all the information I found states that Goodwill is an intangible asset.
Am I missing something here?
Gotcha. Glad I have some confirmation that Goodwill is an intangible asset.
Maybe it was an error…
Hey there guys,
This is what I found on the IFRS website
“IAS 38 sets out the criteria for recognising and measuring intangible assets and requires disclosures about them. An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights. Separable assets can be sold, transferred, licensed, etc. Examples of intangible assets include computer software, licences, trademarks, patents, films, copyrights and import quotas. Goodwill acquired in a business combination is accounted for in accordance with IFRS 3 and is outside the scope of IAS 38. Internally generated goodwill is within the scope of IAS 38 but is not recognised as an asset because it is not an identifiable resource.”
I Hope this could help
I can think of two potential issues:
* The question is incomplete: What intangibles are “amortizable.” That would mean only those intangibles with “finite lives,” in this case, only the product patent. Goodwill used to be amortizable (now only checked for impairment). If my memory serves me correctly, it was also a 40-year life (i.e., amortizable) but now considered indefinite, thus not amortizable.
* The fact set is trying to distract you on the M&A process: You don’t “acquire goodwill” per se. Any goodwill on the target’s balance sheet is removed, and “new goodwill is created” (if any) based on the purchase price in excess of the fair market value of net assets acquired, which is allocated to new goodwill after step-ups in other assets (e.g., PP&E, inventory, etc.).
This statement was found when I was doing my practice questions in my CFA Resource Portal.
I can’t attach the screenshot. So I just copy and paste as per below.
After reading the financial statements and footnotes of a company that follows IFRS, an analyst identified the following intangible assets:
- product patent expiring in 40 years;
- copyright with no expiration date; and
- goodwill acquired 2 years ago in a business combination.
Which of these assets is an intangible asset with a finite useful life?
Product Patent Copyright Goodwill A Yes Yes No B Yes No No C No Yes Yes
B is correct. A product patent with a defined expiration date is an intangible asset with a finite useful life. A copyright with no expiration date is an intangible asset with an indefinite useful life. Goodwill is no longer considered an intangible asset under IFRS and is considered to have an indefinite useful life.
Long-Lived Assets Learning Outcome
- Compare the financial reporting of the following types of intangible assets: purchased, internally developed, acquired in a business combination
It doesn’t make sense to me that goodwill shouldn’t be an intangible asset (what else is it then?). I don’t know about your question’s statement about goodwill not being an intangible asset, but goodwill is indeed considered to have an indefinite useful life under both US GAAP and IFRS.
The learning outcome also implies that goodwill is an intangible asset (i.e. the asset acquired in a business combination).
So maybe it’s an error.
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