Understanding Goodwill Accounting Under Acquisition Method

Very Hard Intercorporate Investments Acquisition Method

XYZ Corporation recently acquired 75% of ABC Limited for $1.5 billion in cash. At the acquisition date, the fair value of ABC's net identifiable assets was $1.2 billion, while the carrying value was $950 million. The acquisition resulted in a significant amount of goodwill being recognized on XYZ's balance sheet. As part of the acquisition method, the management of XYZ needs to decide how to account for the acquisition in their financial statements.

According to the acquisition method under IFRS 3 and ASC 805, which of the following statements correctly describes the implications for the accounting treatment of the acquired goodwill?

Goodwill recognized by the acquirer remains unchanged, regardless of the fair value measurement of the identifiable assets.

Goodwill is initially measured as the excess of the acquisition cost over the fair value of identifiable net assets acquired, and it may be impaired in subsequent periods.

Goodwill must be amortized over the useful life of the acquired assets.

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