Business Combinations - Overpayment on Acquisition

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Basford Consulting is excited to announce the launch of our new series, “Spotlight on Accounting Errors,” which aims to draw attention to common errors made by directors, management, and accountants that often go unnoticed by auditors and can result in significant inaccuracies in financial statements.

Our inaugaral spotlight deals with the failure to impair goodwill arising from a business acquisition where the acquiror overpaid on acquisition. Typically, accountants assume that the purchase price represents the fair value, supporting the recoverable amount of acquired goodwill, and as AASB 3 Business Combinations allows an acquiror to adopt provisional accounting for a period up to 12 months after the acquisition, that no impairment loss is required to be recognised in the year of acquisition. We consider the requirements of AASB 136 Impairment of Assets and its application to goodwill arising from business combinations in the year of acquisition.

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