HANOI UNIVERSITY

FACULTY OF MANAGEMENT AND TOURISM

---------------------oOo----------------------

GOODWILL RECOGNITION AND COMPARISON

BETWEEN VAS AND IFRS

Lecturer and Tutor: Ms. Le Dinh Mai

Tutorial: Tut 2

Members: Do Thi Xuan 1804010114

Le Quynh Trang 1804010104

Nguyen Kieu Trinh 1804010109

Subject: Advanced Financial Reporting

Date: December 05th, 2021

ABSTRACT:

The goodwill represents the future economic benefits derived from assets that cannot be
individually identified or separately recognized, and it includes custom, goodwill rights,
the reputation of the business product, the trademark, and other intangible elements. The
assessment of goodwill entails significant difficulties due to the various aspects of the
elements that comprise it. The solutions resulted in a reconciliation of the theoretical
vision and the accounting treatment of goodwill, which provides greater transparency to
the operations of business combinations in terms of shareholders and social partners, as
well as the subsequent treatment of expenses with this intangible asset
TABLE OF CONTENTS

I. Introduction: ................................................................................................................... 1
II. Company analysis ......................................................................................................... 1
1. Initial recognition of goodwill ................................................................................... 1
1.1 Method ................................................................................................................... 1
1.2 Examples................................................................................................................ 1
2. Subsequent treatment of goodwill ............................................................................ 3
2.1 Method ................................................................................................................... 3
2.2 Examples................................................................................................................ 3
III. Data analysis ................................................................................................................ 4
IV. Comparison .................................................................................................................. 7
1. IFRS 10 and VAS 25- Consolidated Financial statement ....................................... 7
2. Compare IFRS 3 and VAS 11- Business combinations ........................................ 10
3. Intangible assets (IA) between VAS 4 and IAS 38 ............................................... 12
3.1. Conditions for recognition Intangible assets ................................................... 12
3.2. Initial recognition: ............................................................................................. 13
3.3 Subsequent recognition: ..................................................................................... 14
3.4. Impairment......................................................................................................... 15
V. Analysis and recommendation ................................................................................... 15
VI. Conclusion .................................................................................................................. 17
I. Introduction:
Goodwill plays an important role in a business enterprise, perceived as an intangible asset
that illustrates the ability of the company to make excess profit in comparison with
another company. This research focuses on purchased goodwill that generally does not
appear on individual entities' financial statements, but instead is a highlight in the
consolidated balance sheet when the firm acquires another. On the other hand, the
differences between these two accounting standards (IFRS and VAS), coupled with the
recognition in a business combination, are conceptually distinct problems. Along with
IFRS adoption in Vietnam in 2022, accounting for goodwill under the IFRS became more
and more critical.

This working paper reviews the empirical literature on goodwill and treatment under VAS
and IFRS to achieve several objectives. Firstly, we give Masan Group as an example of
how a firm records goodwill. Secondly, we critically assess extant studies on fifteen firms
from VN30 to collect statistical data. Last but not least, we compare VAS with IFRS to
point out gaps between the two regulations. Therefore, we believe our research will
contribute timely and relevant analyses to the global research project on goodwill.

II. Company analysis

1. Initial recognition of goodwill

1.1 Method
Goodwill arises from the acquisition of subsidiaries or associates. It represents the excess
of the cost of the business combination over the Group’s interest in the net fair value of
the acquired company’s identifiable assets, liabilities, and contingent liabilities. If a
negative excess occurred, in other words, gain from bargain purchase, the difference is
recognized directly in the consolidated income statement for the current year.

1.2 Examples
On 31 December 2019, Masan obtained 83.7% ownership of VCM at a total
consideration of VND 9,007,077 million. The combined firm would be a subsidiary of
Masan Group. The figure below shows the impact of the business combination on the
assets and liabilities:

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 Source: Masan Group separated balance sheet-2019

According to the figure above, Masan recognized total goodwill of VND3,578,372

million from this business combination transaction.

Besides, Masan Group corporation recognized goodwill in accordance with VAS method.
Under the consolidated balance sheet, goodwill is recorded separately in Other long-term
assets. After the business combination, the goodwill of Masan was raised from VND
519,539 million to VND 3,985,428 million.

Source: Masan Group consolidated balance sheet-2019

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2. Subsequent treatment of goodwill

2.1 Method
Under the VAS method, after initial recognition, goodwill is measured at cost less any
accumulated amortization. Goodwill arising on acquisition is amortized over a period of
not above 10 years on a straight-line basis. The parent company conducts the periodical
test for impairment of goodwill of investment in subsidiaries. If there is evidence of
impairment loss incurred that is higher than the yearly allocated amount of goodwill on
the straight-line basis, the higher amount will be recorded in the consolidated income
statement.

Meanwhile, under IFRS, goodwill will never be amortized due to its stipulated indefinite
useful life, instead, the company has to test impairment of goodwill at least annually.

2.2 Examples
In accordance with VAS method, in 2020, Masan recorded amortization during the year
for the goodwill is VND 487,231 million. After deducting the accumulated amortization,
at the end of the year, Masan Group goodwill is left at VND 3,831,500 million.

Source: Masan Group consolidated balance sheet-2020

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 In contrast, following IFRS, we take Nestle Holdings Incorporation as an illustration,
goodwill is not amortized but tested for impairment annually. In 2018, Nestle recognized
impairments from goodwill at CHF 592 million after an annual review of the impairment
test.

Source: Nestle Group consolidated balance sheet-2018

III. Data analysis

We selected 15 companies from VN30 on HNX during 2020 to have an overview from
statistical data of how goodwill is recognized in Vietnam. According to the table below,
we can observe that most of the companies on VN30 recognizes goodwill in accordance
with Purchase method and amortizes over not beyond 10- year period on the straight- line
basis.

Company Goodwill Goodwill Amortizat Amortiza Number Impairme

recognition ion tion of years nt
name
method method amortized

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Military Yes Purchase Yes Straight- 10 -
Commercial method line
bank (MBB)

Masan Yes Internally Yes Straight- 10 Yes

Group Corp. generated line
(MSN) goodwill

Purchase
method

Mobile Yes Purchase Yes Straight- 10 Yes

World method line
Investment
Corp.
(MWG)

Novaland Yes Purchase Yes Straight- 10 Yes

Investment method line
Group
(NVL)

Petro Yes Purchase Yes Straight- 10 -

Vietnam line
Power Corp.

(POW)

Vinhome Yes Purchase Yes Straight- 10 -

JSC (VHM) method line

Hoa Phat Yes Purchase Yes Straight- 10 -

Group Joint method line
Stock

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Company
(HPG)

Vingroup Yes Purchase Yes Straight- 10 -

JSC (VIC) method line

Khang Dien Yes Purchase Yes Straight- 10 -

House method line
Trading and
Investment
JSC (KDH)

Vietnam Yes Purchase Yes Straight 10 -

Dairy method line
Products
JSC

(VNM)

HCM City Yes Purchase Yes Straight- 10 -

Developme method line
nt Joint
Stock
Commercial
Bank
(HDB)

Vietnam Yes Purchase Yes Straight- 10 -

JSC method line
Commercial
Bank for
Industry and
Trade
(CTG)

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Sai Gon Yes Purchase Yes Straight 10 -
Beer- method line
Alcohol -
Beverage
Corp.(SAB)

IV. Comparison
International Financial Reporting Standards (IFRS) is a global accounting standard
published and regulated by the International Accounting Standards Board (IASB) to
provide guidance in the preparation and presentation of financial statements. The
Vietnamese Accounting Standards (VAS) use IFRS as the basis, however, the two
standards also have differences.

(1) Objectives: The objective of both IFRS and VAS is to establish principles for the
presentation and preparation of consolidated financial statements when an entity
controls one or more other entities.
(2) Both IFRS and VAS do not deal with the accounting requirements for business
combinations and their effect on consolidation, including goodwill arising on a
business combination.
(3) Consolidation Procedures: When preparing consolidated financial statements, the
parent and its subsidiaries financial statements are combined on a line-by-line
basis by adding items of assets, liabilities, equity, income, and expenses. To
present financial information about the group as if it were a single enterprise in the
consolidated financial statements.

1. IFRS 10 and VAS 25- Consolidated Financial statement

Contents Consolidated financial statement - Consolidated financial statements

IFRS 10 and Accounting for Investments in
subsidiary - VAS 25

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Control The investor controls the investee if Control is presumed to exist when a
and only if the investor has all of the parent holds more than half of a
following: company's voting power, either directly
or indirectly through subsidiaries,
(a) Has control over the investee, in
unless it can be clearly proven that
particular investor has the right to
such ownership does not constitute
operate related activities
control in exceptional circumstances.
to which these activities affect
significantly to the results of its
operations; In the following cases, the right of
control can be performed even if the
(b) Bear the risks and be entitled to
investor holds less than 50% of the
the benefits of
voting rights:
performance results due to executive
(a) control of more than half of the
participation of the investee;
voting rights through an agreement
(c) Capable of using control to with other investors;
influence the amount of the
(b) authority to govern the enterprise's
investor’s returns.
financial and operating policies under a
statute or an agreement;

(c) the authority to appoint or remove

the majority of members of the Board
of Management or an equivalent
governing body; or

(d) the ability to cast the deciding vote

at meetings of the Board of
Management or an equivalent
governing body.

Exceptions An entity that is a parent shall - The parent company is wholly or

to present consolidated financial partially owned
consolidati statements. This as whole by other company with

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on IFRS applies to all entities, except as approval of minority shareholders
follows: - Further requirements:
➔ Not be a State Owned
- It is a wholly‐owned subsidiary or
Enterprise or entity with majority
is a partially‐owned subsidiary of
interest from the state;
another entity and all its other
owners, including not ➔
those Have the immediate parent

otherwise entitled to vote, have been company which is preparing

informed about, and do not object to, consolidated financial statements to

the parent not presenting comply with VAS.
consolidated financial statements;
- Its debt or equity instruments are
not traded in a public market (a
domestic or foreign stock exchange
or an over‐the‐counter market,
including local and regional
markets);
- It did not file, nor is it in the
process of filing, its financial
statements with a securities
commission or other regulatory
organisation for the purpose of
issuing any class of instruments in a
public market;
- Its ultimate or any intermediate
parent generates publicly available
financial statements that comply
with IFRSs, in which subsidiaries
are consolidated or measured at fair
value through profit or loss in
accordance with this IFRS.

Consolidat - A parent shall present non-- - Minority interests (instead of

ion controlling interests in the noncontrolling interests) should be

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procedure consolidated statement of financial presented separately from liabilities
position within equity, separately and parent shareholders' equity in the
from the equity of the owners of the consolidated balance sheet. Minority
parent. interests in the group's income should
- Equity transactions are changes in also be presented separately.
a parent's ownership interest in a
subsidiary that do not result in the
- (Not mentioned)
parent losing control of the
subsidiary (i.e. transactions with
owners in their capacity as owners).

2. Compare IFRS 3 and VAS 11- Business combinations

Business combinations- IFRS 3 Business combinations- VAS 11

Overview IFRS 3- Business Combinations is VAS 11 is established on the basis of

an accounting system in which the IFRS 3. Besides, Circular 2020 also
purchaser gains control over one or provides additional instructions on the
more firms (e.g a merger, consolidated financial statement
acquisition…). Such combinations preparation and reporting.
utilize the “acquisition method”
requiring assets and liabilities to be
evaluated at fair value at the time
transactions occurred.

Goodwill Regarding IFRS 3, goodwill is not Regarding VAS 11, goodwill is

amortized but instead, is assessed for recorded as an asset and is amortized
impairment annually or even more over its projected useful life in a
often if a sign of impairment is systematic manner, which is not above
present. 10 years.

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 Regarding Circular 202, goodwill is
amortized over 10 years or lower
projected useful life after the
purchasing date and is required to
assess for impairment annually. During
a year, if goodwill impairment exceeds
its amortization, the amortization will
follow the impairment value.

Non- Regarding IFRS, the acquiring firm Circular 202 permits only the
controlling will evaluate NCI of the acquired proportional interest approach to
interest company based on an acquisition- measure NCI.
by-acquisition approach at the date
of purchasing, perhaps at NCI’s
proportional portion of the recorded
value of the acquired firm’s
identifiable net assets or at fair
market value. In the first case, only
figures resulting from the controlling
interest (the parents) are included in
goodwill. In the remaining case,
goodwill comprises amounts owing
to the noncontrolling interest.

Contingent Regarding IFRS, contingent Regarding VAS 11, contingent

considerati consideration is recorded at fair consideration is recognized in the cost
ons value on the acquisition date. On of a business combination at the date of
subsequent days, the recognition of purchasing if the payment is likely to
contingent consideration based on if be paid and accurately evaluated.
it is regarded as a liability (revalued Successive fair value changes of
to fair value at the reporting date and contingent combination are modified to
fair value changes are recorded in account for the cost of goodwill as well
profit and loss) or equity (not

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 revalued and successive recognition as combination.
is included in equity). The
categorization as liability or equity is
referred to the guidance in IAS 32.

3. Intangible assets (IA) between VAS 4 and IAS 38

Intangible assets (IA) are typically identifiable non-monetary assets without physical
substance, used over the long-run. The most common types of intangible assets are
patents, copyrights, franchises or licenses, trademarks or trade names, and goodwill. We
make a comparison of intangible assets between VAS 4 and IAS 38, based on four criteria
such as conditions, initial recognition, subsequent recognition and impairment.

3.1. Conditions for recognition Intangible assets

a. Similarities:

Both VAS 4 and IAS 38 require an entity to illustrate that items meet two
qualifications. Firstly, if this item is an intangible asset, it is probable that future
economic benefits attributed to the asset will flow to the business. Besides, the cost of
assets (costs of purchase or cost of conversion) can be measured reliably.

b. Differences:

Intangible Assets-IAS 38 Intangible Assets-VAS 4

Conditions No additional condition.

VAS 4.16 requires two additional
conditions for intangible asset
recognition compared with IAS 38:

- The estimated useful life is over 1

year.

- The minimum historical cost for

qualification as fixed assets is VND 30
million. (Circular 45/2013/TT-BTC)

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3.2. Initial recognition:

a. Similarities

Intangible assets shall be measured initially at historical cost.

b. Differences

Intangible Assets-IAS 38 Intangible Assets-VAS 4

The historical cost of a separately- The cost of a separately-acquired

Separately purchased intangible fixed asset intangible asset includes:
purchased comprises:
- Its purchase price after deducting
Intangible
- Purchase price, including import trade discounts or price reductions.
Assets
duties and non-refundable purchase
- Taxes
taxes, after deducting trade
discounts and rebates. - Expenses are directly related to the
putting of the asset into use as planned.
- Any expenditures that are directly
attributable to preparing the asset
for its intended use.

Acquisitio
If an intangible asset is acquired in a According to VAS 04, “fair value” can
n in a
business combination, the cost of be:
business
that intangible asset will be its fair
combinati The listed price in the active market;
(market) value at the acquisition
on
date. The price of the transaction of buying
and selling similar tangible fixed
The market value is often the
assets.
current purchase price. If a purchase
price is not available, price will be
referred to the most recent similar
transaction

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 If there is no market for that
tangible fixed asset, the price is
based on the technique of estimating
the fair value of the asset.

3.3 Subsequent recognition:

Intangible Assets-IAS 38 Intangible Assets-VAS 4

Under IAS 38.75, either cost model VAS 4 allows the use only cost model
Method
or revaluation model was accepted and no impairment loss was
after initial recognition. recognized.

Under the cost model, an intangible

asset should be carried at its cost
less any accumulated amortisation
and any accumulated impairment
losses.

Under the revaluation model, assets

shall be carried at a revalued
amount, (based on fair value at the
date of the revaluation) less any
subsequent accumulated
amortisation and any subsequent
accumulated impairment losses.

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 IAS 38 does not give any limit over VAS 4.54 permits the amortization
the useful life. IAS 38.9 permits the period up to 20 years
Amortizati
amortizable amount of an
on
intangible asset with a finite useful
life shall be allocated on a
systematic basis over its useful life.

3.4. Impairment

Intangible Assets-IAS 38 Intangible Assets-VAS 4

Impairment Intangible assets which are

Impairment is not allowed under
taken to annual impairment tests
VAS 4.
include indefinite intangible
assets, goodwill, and intangible
assets not available for use .
Others are tested for impairment
when there is an impairment
indicator.

V. Analysis and recommendation

Disadvantages of VAS in implementing compared to IFRS

In comparison to VAS accounting standards, IAS does not impose forms such as account
system (Chart of Account), reporting form (Accounting form), accounting book form, and
so on (Ledgers). IAS/IFRS do not generally prescribe accounting forms. Furthermore,
enterprises that use IAS/IFRS are free to use the accounting system and accounting forms
that are appropriate and convenient for the characteristics of the business. Businesses
using VAS cash, for example, must have an account number of 111, whereas businesses
using IAS/IFRS can choose any number they want.

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The IAS also provides a conceptual framework, and the standards have a high degree of
consistency. On the contrary, VAS still has many unresolved issues, a lack of a definition
framework, and inconsistency among accounting standards.

Despite the fact that the Vietnamese Accounting Standards (VAS) are based on the
framework of International Accounting Standards (IAS/IFRS), there are only 26
standards in the VAS. There are 41 IAS standards and 16 IFRS standards, respectively.
As a result, VAS will not have accounting standards comparable to IAS/IFRS. As follow:

- International Accounting Standards for Financial Statement Presentation and

Other Related Issues
- Accounting principles for income statement and statement of financial
position/balance sheet items
- Accounting standards that are specific to a particular industry or activity
- Accounting Principles Applicable to Specific Events or Transactions
- Accounting standards for measurement
- Accounting Standards for Consolidation, Subsidiary or Consolidation of Other
Entities
When Vietnam adopts IFRS, the following issues will arise:

- Inadequate human resources to support IFRS training courses;

- There was a lack of official guidance and a comprehensive orientation from the
government for adopting IFRS.
- Language barriers should not be underestimated.
- Financial reports prepared in accordance with IFRS will result in a distinction
between taxable and accounting income.
Government‘s plan of harmonization with IFRS in the future

According to a consolidated article on ifrsvietnam.vn34, the timeline for changing the

accounting system until 2025 was explained as VAS will be issued again based on the
latest changes of IFRS / IAS35 with new standards for three segments: public interest
enterprises are required to use IFRS; other units will follow VFRS; and SMEs will have
their own laws.

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VI. Conclusion
On a final note, “Goodwill is a topic worthy of investigation to enhance the transparency
of financial worth of assets in financial reporting, helping users to make better-informed
decisions about resource allocation” (Masters-Stout et al., 2008). This paper clarifies the
concept of goodwill, recognition as well as comparison between two standards, thereby
we propose some recommendations for adopting IFRS in Vietnam in the near future.

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Bragg, S. and Bragg, S., 2021. Goodwill amortization definition — AccountingTools.
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Science Direct. 2021. The Accounting Treatment of Goodwill as Stipulated by IFRS 3.

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PWC. 2019 “IFRS overall 2019”. Available at:

https://www.pwc.com/hu/en/services/ifrs/ifrs_kiadvanyok/in_depth/IFRS%20overview%
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APPENDIX
PEER REVIEW

Students’ name Student IDs Contribution

(Total = 100%)

Do Thi Xuan 1804010114 33.33 %

Le Quynh Trang 1804010104 33.33 %

Nguyen Kieu Trinh 1804010109 33.33 %

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