Full Goodwill Method

In the full goodwill method, goodwill is calculated as the difference between the total fair value of the target company and the fair value of it net identifiable assets. Full goodwill method is mandatorily required by US GAAP and allowed as an option by IFRS (besides the partial goodwill method).

There are a lot of acquisitions in which the acquirer obtains more than 50% but less than 100% ownership. In such situations there are two possible methods for calculation of goodwill: difference between total fair value of company and total fair value of net identifiable asset (that is the full goodwill method) or the difference between purchase consideration and the acquirer's share of fair value of net identifiable assets (that is the partial goodwill method).


Company A acquired 75% shareholding in Company B for $20 million. Book value of net identifiable assets of Company B is $14 million. The fair value of Company B's asset is the same as their book value except accounts receivables which are impaired by $1 million. Book value of assets is $54 million while book value of liabilities is $40 million

The first input that we need for calculation of goodwill under full goodwill method is the fair value of the target, i.e. Company B. If 75% of Company B is worth $20 million then 100% of Company B should be worth $20 million/75% which equals $26.67 million. The fair value of net identifiable assets of Company B equals book value +/- fair value adjustments. In this example fair value of net identifiable assets is $13 million which equals $14 million minus $1 million on account of impairment of accounts receivable. Goodwill under full goodwill method is hence $13.67 million.

Company A will pass the following journal entry to record the business combination.

Goodwill$13.67 M
Assets$53 M
Liabilities$40 M
Cash$20 M
Non-controlling interest$6.67 M

Non-controlling interest is calculated as 25% of total fair value of assets ($26.67*0.25). It can also be arrived at the balancing figure: (goodwill under full goodwill method + assets acquired − liabilities assumed − cash paid)

Written by Obaidullah Jan, ACA, CFA