HANOI UNIVERSITY

FACULTY OF MANAGEMENT & TOURISM

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ADVANCED FINANCIAL ACCOUNTING ASSIGNMENT

Compare accounting for goodwill under IFRS and VAS (initial recognition and

subsequent treatment: amortization and impairment)

GROUP

Tutor: Ms. Dinh Le Mai Tutorial 03

Le Thi Thao 2004010093

Le Thuy Tien 2004010102
Dao Huyen Trang 2004010104
 Table of contents
Introduction........................................................................................................................................................1
1. Literature review of accounting for goodwill............................................................................................1
1.2. Accounting for goodwill........................................................................................................................2
1.2.2. Accounting for goodwill after initial recognition..............................................................................2
2. Goodwill’s accounting: Vietnam versus international practices...............................................................3
2.2. Subsequent accounting for Goodwill.....................................................................................................5
2.2.2. Subsequent accounting for goodwill under VAS...............................................................................6
REFERENCES..................................................................................................................................................9
 ABSTRACT
We are facing a new era of economic development with a growing significance of intangible
assets. Goodwill constitutes a significant asset for numerous companies, especially those which
are operating in high technology industries. According to the growing importance of intangibles
there has also been a significant change in standards associated with accounting for goodwill.
The article presents an overview of the accounting treatment of goodwill regarding International
Financial Reporting Standards and Vietnamese Accounting Standards. The value of goodwill is
related to the future. It represents capabilities for the future growth and future earnings, but the
accounting approach is primarily focused on past information. A more dynamic approach needs
to be adopted. To bring that to the end it is extremely important that standard setters create an
adequate approach of accounting for goodwill. Despite the fact that the objective of the new
International Financial Accounting Standard has been to move towards international
convergence; significant differences between standards still exist. The article presents the initial
recognition and subsequent treatment: amortization and impairment.
 Introduction
According to IFRS 3 and VAS 11, goodwill refers to “an asset representing the future economic
benefits arising from other assets acquired in a business combination that are not individually
identified and separately.” Goodwill measures by amounts paid in excess of the fair value of the
identifiable net assets for a business acquisition. As a result of domestic and foreign mergers and
acquisitions, goodwill increasingly appears on the balance sheets of many businesses, for
example, in the United States between 1990 and 2007 (Wen, 2016). Appeared at the first time in
the accounting regulation under the Decision No 1141 TC/QĐ/CĐKT issued by the Ministry of
Finance on 01/11/1995, accounting for goodwill has enabled Vietnamese companies to properly
record newly formed business relationships resulting from the growing number of mergers and
acquisitions following the economic reform.
This report offers an overview of goodwill accounting under IFRS and VAS in terms of initial
recognition and subsequent treatment: amortization and impairment. As a result, the study aims
at answering the following question: what differences exist between Vietnamese accounting for
goodwill and international ones. The case study is utilized to address the research issues
indicated above and International Financial Reporting Standards (IFRS), Vietnamese accounting
standards are analyzed.

1. Literature review of accounting for goodwill

1.1. Nature of goodwill
Different perspectives on goodwill have been discussed and expressed in the literature. The legal
and economic professions have determined the definition of goodwill in both economic and legal
categories. According to economists, goodwill amounts represent amounts of incremental
investment paid to earn abnormal returns on investments. These abnormal returns arise from
various sources and for various reasons (Courtis, 1983). Their primary claim is that, like tangible
assets like inventory and property, plant, and equipment, goodwill is an economic asset with
predicted future worth. This corresponds with the technological developments and advances in
knowledge that have been made during the last century (Hughes, 1982). From a legal standpoint,
goodwill is seen to derive value from privileges and rights. For legal purposes, goodwill is a

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collection of rights and privileges that the owner of an operating business enjoys. At its core is
the proprietary right to use everything that makes the business attractive in order to produce
revenue as well as value (Osborn, 2012).
The following questions about goodwill have been discussed by accounting experts and
practitioners: (1) what are the likely future economic advantages; (2) how substantial are these
benefits; and (3) how long will these benefits last? Over time, changes to the goodwill-related
accounting rules have taken these problems into consideration.
1.2. Accounting for goodwill
1.2.1. Initial recognition of goodwill
Initial recognition of goodwill focuses on when goodwill should be recognized. Goodwill is only
recorded when a business merger or acquisition occurs; its value can be reliably identified via a
transaction between two parties acting independently and having no relationships to each other.
Internally generated goodwill is not recognized on the balance sheet because the measurement of
goodwill’s value is not considered as a reliable measurement.
There are two theoretical approaches for measuring goodwill. First, the excess profit approach
refers to the difference between the combined company’s profits over normal earnings for a
similar business. Despite this approach better comports with the economic nature of goodwill, it
faces operationalizing challenges due to high uncertainty in estimation of future abnormal
earnings and the rate used to discount the future abnormal earnings to its present value. Second,
the residual approach refers to the difference between the purchase price and the fair market
value of an acquired company’s assets. This measurement reflects the economic nature of
goodwill in that it attempts to account for amounts paid for an acquisition that cannot be
attributed to any such premiums on investment are necessitated because of the contracting
parties’ views of the entity’s ability to generate profits in excess of normal rates of identifiable
assets. Ostensibly, such premiums on investment are necessitated because of the contracting
parties’ views of the entity’s ability to generate profits in excess of normal rates.

1.2.2. Accounting for goodwill after initial recognition

Accounting for goodwill after the initial recognition entails ongoing evaluations of how the
goodwill's value has changed over time. The sustainable time of unusual earning power and the
methodology applied to continuously measure such earning power comprise the two main

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challenges here. In the former, the useful life of goodwill is determined. Goodwill is regarded as
a finite-life intangible that can be amortized over a predetermined amount of time. However,
goodwill is regarded as an intangible with an indefinite lifetime that requires an annual
impairment test.
2. Goodwill’s accounting: Vietnam versus international practices
2.1. Initial recognition of goodwill
IFRS and VAPs share the same practices of initial goodwill recognition, which consists
of four steps as follows:
Step 1: Determine the fair value of the company's assets because the book value of a business
does not always equal the market value. Calculating market value is usually fairly complex and
requires plenty of background knowledge, and as a result, the fair value of a business is usually
calculated by a certified professional, such an accountant, financial analyst, or appraiser.
Typically, figuring out market value will involve looking at what other similar assets or
businesses are selling for. One approaches to average the value of similar businesses being sold,
and then price the value of the business being purchased above or below the average depending
on the quality of the business
Step 2: Subtract the business's liabilities from the fair value of assets. If the business has
liabilities of $200,000, subtracting this from the business's assets of $1.2 million means the fair
value of the company's assets is $1 million. This simply means that if you subtract the business's
assets from their liabilities to get a book value, and you determine what the market would pay in
theory for those assets, the result in this case would be $1 million.
Step 3: Subtract the fair value of net identifiable assets from the purchase price to calculate
goodwill. Goodwill is defined as the price paid in excess of the firm's fair value. To calculate it,
simply subtract the total asset market value amount from the purchase price; this amount is
nearly always a positive number.
Accounting policies on initial goodwill are stated by different corporations. First, by ThaiBev, a
listed Vietnamese corporation adopts Vietnamese accounting regulations: “Goodwill is initially
measured at cost being the excess of the cost of the business combination over the Group’s share
in the net fair value of the acquirer's identifiable assets, liabilities and contingent liabilities. If the
cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the
difference is recognized directly in the consolidated income statement "(ThaiBev, 2017, p. 148).

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Second, by AVIA, a listed insurance corporation located in the United Kingdom adopts IFRS:
“Goodwill represents the excess of the cost of an acquisition over the fair value of theGroup’s
share of the net assets of the acquired subsidiary, associate or joint venture at the date of
acquisition” (AVIA, 2016, p.141)
The table below shows how goodwill was calculated by the ThaiBev Group. Specifically, the
ThaiBev Group acquired 343.642.587 shares of Sabeco on 29 November 2017 for a
consideration of nearly VND 5 billion equivalent to 49% ownership. Accordingly, Sabeco
became the Company’s subsidiary. The goodwill arising on acquisition of subsidiary is VND
6,963,821

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2.2. Subsequent accounting for Goodwill
2.2.1. Subsequent accounting for goodwill under IFRS
Subsequently, when replacing IAS 22 with IFRS 3, the IASB concluded that goodwill should not
be amortised and instead should be tested for impairment annually, or more frequently if events
or changes in circumstances indicate that it might be impaired.
According to IAS 22 Business Combinations, acquired goodwill had to be systematically
amortized over the best estimate of its useful life. It was assumed, but not proved, that its useful
life ended after twenty years of discovery. Even in cases where there was no sign of impairment,
acquired goodwill had to be tested for impairment in accordance with the previous version of
IAS 36, at least at the end of each financial year, if the presumption was impaired.
There are three methods for deciding which way to account for acquired goodwill once it is
initially recognized. Firstly, straight-line amortisation but with an impairment test whenever
there is an indication that the goodwill might be impaired. Second, there is no amortization but
there is an annual impairment test or a more frequent one if events or circumstances change and
suggest that the goodwill may be damaged. Giving entities the option to select between the first
and second approaches is the last.

Amortization is a method that is similar to that used for other intangible and tangible fixed assets
that do not have endless useful life in that it distributes the cost of acquired goodwill over the
time periods in which it is utilized. Property, plant, and equipment useful lives must be
ascertained, and depreciable amounts must be systematically allocated over the course of those
useful lives by the entities in question. Accounting acquired goodwill differently has no
reasonable basis. It is impossible to determine the manner in which acquired goodwill declines or
to estimate the useful life of that goodwill with a sufficient degree of dependability.
Since goodwill cannot be measured in independence from other assets or groups of assets, it
cannot create cash flows on its own. Rather, it is expressed as a residual amount, which is the
difference between the acquirer's interest in the net fair value of the acquiree's identifiable assets,
liabilities, and contingent liabilities and the cost of the business combination. Furthermore, as
they both contribute to the same cash flows, goodwill created after a company merger and
goodwill obtained during one cannot be distinguished from one another. We can therefore
conclude that the carrying amount of goodwill will always be protected from impairment by that

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internally generated goodwill because it is not possible to measure internally generated goodwill
separately following a business combination and to factor that measure into the impairment test
for acquired goodwill. Thus, ensuring that the carrying amount of goodwill is recoverable from
future cash flows anticipated to be created by both acquired assets and goodwill generated
internally following the business combination may be the greatest goal of the goodwill
impairment test.
How Dixons Carphone, a UK-based listed corporation, accounts for goodwill post initial
recognition is explained in the paragraph that follows:
Goodwill is subject to annual impairment reviews, as mandated by IAS 36. These evaluations are
conducted based on the following standards: the way in which these companies are operated and
managed determines the cash general units grouping as specified in IAS 36, "Impairment of
Assets," and company acquisitions give rise to an assigned amount of goodwill. The value in use
is determined by using discounted cash flow modeling to management's own projections for a
five-year period. Cash flows are then extrapolated using a long-term growth rate for the relevant
market, which is equivalent to long-term forecasts of GDP growth rates. The value in use and
carrying amount are then compared to ascertain whether impairment has occurred. The pre-tax
discount rate, the growth rate over the next five years, and management's estimates are the main
assumptions used to calculate value in use.
After recognition of the impairment loss, this loss was charged to the income statement as other
expenses in the operating profit before tax that was due to the profits of the shareholders
following integration and restructuring charges.
2.2.2. Subsequent accounting for goodwill under VAS
Unlike IFRS, VAS does not require annual goodwill impairment testing but implements a straight
line amortization model over a period no more than 10 years from the date of purchase in the
business combination transaction. (Circular 202/2014/TT-BTC).
Using the straight-line methods, goodwill is amortized over the expected useful life, during
which the business recovers sources that represent economic advantages. In accordance with
VAS 11, goodwill that has little value is recognized in expenses. If not, goodwill is recorded
consistently in a uniform manner for its estimated useful life if its value is large. The straight-line
approach is frequently employed unless there is strong evidence to support another approach that
is thought to be better suitable. Unless there is a shift in how sources of financial gains from such

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goodwill are recovered, the amortization method must be constant from one period to the next.
At year-end, the timing and methods of goodwill amortization are assessed. It is altered
unnecessarily when the goodwill's useful life differs significantly from the initial estimate. If
there are changes to the methodology for recoverable future economic benefits of goodwill, the
amortization method must also be adjusted. If so, the amortized expense for the current year
must be modified, and going forward, it must be reported in the financial statement's notes.

Circular 202/2014/TT-BTC requires that the parent company must conduct the review for
impairment of goodwill periodically. Evidence showing that the indicators of impairment loss
incurred above the goodwill allocated annually on a straight-line basis will result in the higher
amount being recognized in the consolidated financial statement. A firm acquires another for a
price greater than the fair market value of the acquired company's physical assets, which is
recognized as goodwill under VAS 11. The amount that represents the excess of the acquisition's
costs over the acquirer's share of the net fair value of the recognized identifiable assets,
liabilities, and contingent liabilities is the goodwill's initial measurement. When goodwill is
impaired under VAS 11, the entire impairment amount has to be written down as a loss
immediately if it has been evaluated and determined to be incorrect. On the income statement
and balance sheet, this impairment is shown as a loss and a decrease in the goodwill account.

The Hoa Phat Group Joint Stock Company's financial statement notes indicate that the company
amortized the goodwill of subsidiaries by conducting goodwill impairment review. It is evident
that the goodwill arises on the acquisition of subsidiaries. Carrying value of goodwill decreasing
on acquisition of a subsidiary from VND 43,109,950,665 to VND37,121,950,665 is written
down to a recoverable amount as management determines that it is not fully recoverable.
Furthermore, the potential inflow of benefits from investments in the subsidiaries is the basis for
goodwill impairment at these subsidiaries. At present, it's challenging to determine whether the
Vietnam market impairment review is corrected. But as a result, the Group's net profits have
dropped by VND 22,567 million. It demonstrates how the Hoa Phat Company's Statement of
Profit or Loss is directly impacted by the impairment of goodwill.

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Source: Hoa Phat financial statements 2021

3. Conclusion
It is crucial to comprehend the new goodwill accounting procedures when we are well-versed in
accounting standards and understand the way to recognize, measure, and amortize the
impairment test. It is evident how the new accounting standards affect the balance sheet, income
statement, and financial statements, as well as the ongoing discussions on goodwill.

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 REFERENCES
ThaiBev (2017). Annual report. Retrieved from:
https://thaibev.listedcompany.com/misc/AR/20180111-thaibev-ar2017-en.pdf
IFRS (2018). Subsequent accounting for goodwill. Retrieved from:
https://www.ifrs.org/content/dam/ifrs/meetings/2018/june/iasb/ap18c-gi.pdf
ATAX (2019). VAS No.11 - Business combination. Retrieved from:
https://www.atax.vn/vas-no-11-business-combination
KPMG (2022). Will goodwill under IFRS be amortized again?. Retrieved from:
https://assets.kpmg.com/content/dam/kpmg/ch/pdf/blc-goodwill-amortization.pdf
CROWE (2021). Key differences between Vietnamese Accounting Standards (VAS) and
International Accounting Standards (IFRS). Retrieved from:
https://www.crowe.com/vn/insights/accounting-publications/faq/c7-vas-and-ifrs#:~:text=
VAS%2011%20stipulates%20that%20goodwill,the%20value%20of%20goodwill%20loss
es.
KIDO (2022). Annual report. Retrieved from:
https://www.kdc.vn/files/documents/KDC_AR%202022_EN%20(Final).pdf
CURRYS (2022). Annual report & accounts 2022/2023. Retrieved from:
https://www.currysplc.com/media/fa4dn4ef/41183-currys-ar-2022-23-web.pdf
HoaPhat Group Joint stock company (2021). Financial statements. Retrieved from:
https://file.hoaphat.com.vn/hoaphat-com-vn/2022/04/audited-consolidated-financial-state
ments-for-the-year-ended-31-december-2021.pdf