Current Accounting Standard

Current accounting standard on the recognition and measurement of goodwill in the
Malaysian environment.
According to Malaysian Accounting Standards Board (MASB), the recognition and

measurement of goodwill lie under section 19. This section covers the business combinations
and goodwill. Under this section paragraph 19.22, it is stated that the acquirer shall do certain
things at the acquisition date. Firstly, the acquirer shall recognize goodwill acquired in a
business combination as an asset. Secondly, the acquirer shall initially measure that goodwill
at its cost, being the excess of the cost of the business combination over the acquirer’s interest
in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized as
stated in paragraph 19.14.
According to MASB section 19 paragraph 19.23, after initial recognition, the acquirer
shall measure goodwill acquired in a business combination at cost less accumulated
amortization and accumulated impairment losses. There are certain conditions that must be
followed. Firstly, an entity shall follow the principles for amortization of goodwill as stated in
Section 18 paragraphs 18.19 to 18.24 of MASB. The life shall be determined based on
management’s best estimate if the useful life of goodwill cannot be established reliably. But, it
must not exceed ten years. Besides that, an entity shall follow Section 27 of MASB on
impairment of assets for recognizing and measuring the impairment of goodwill.
In paragraph 19.24, it is stated that if the excess over the cost of acquirer’s interest in
the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities which is
referred to as ‘negative goodwill’ is recognized, the acquirer shall do certain things. First, the
acquirer shall reassess the identification and measurement of the acquiree’s assets, liabilities,
and provisions for contingent liabilities and the measurement of the cost of the combination.
Next, the acquirer shall recognize immediately in profit or loss any excess remaining after the
reassessment.
As stated MASB section 27 paragraph 27.25, for the case of impairment testing,
goodwill acquired in a business combination shall from the acquisition date which will be
allocated to each of the acquirer’s cash-generating units that is expected to benefit from the
synergies of the combination, not taking into account other assets or liabilities of the acquiree
are assigned to those units. In paragraph 27.26, it is stated that the non-controlling interest in
goodwill is attributed to the part of the recoverable amount of cash generating unit. As stated
in paragraph 27.27, if goodwill cannot be allocated to individual cash-generating units or
groups of cash-generating units on a non-arbitrary basis, then for the purposes of testing
goodwill the entity shall test the impairment of goodwill by determining the recoverable
amount. There are two ways to determine the recoverable amount. First, the acquired entity is
its entirely, if the goodwill relates to an acquired entity that has not been integrated which
means the acquired business has been restructured or dissolved into the reporting entity or other
subsidiaries. The second way to determine the recoverable amount is the entire group of
entities, excluding any entities that have not been integrated, if the goodwill relates to an entity
that has been integrated. Paragraph 27.28 stated that an impairment loss recognized for
goodwill shall not be reversed in a subsequent period.1
Next, according to Audit Committee Institute (2014), goodwill is recognized as a gain

on bargain purchase. It is stated that goodwill is measured as a residual and is recognized as an
asset. Goodwill is recognized in profit or loss after reassessing the values used in the acquisition
accounting if the residual is a deficit or a gain on a bargain purchase.2 According to Mike
Straneva, Ernst & Young LLP (2015), goodwill and bargain purchase gains are not recognized
in asset acquisitions. According to them, goodwill shall be recognized as the acquisition date
and measured as the excess of the aggregate of the three conditions. Firstly, the consideration
transferred measured which generally requires acquisition date fair value. Secondly, the fair
value of any non-controlling interest in the acquiree. Thirdly, in the business combination
achieved in stages, the acquisition date fair value of the acquirer’s previously held equity
interest in the acquiree. The excess of the following aggregate must be over the net of the
acquisition date amounts of the identifiable assets acquired and the liabilities assumed
measured.3
11
Malaysian Accounting Standards Board (2016). Malaysian Private Entities Reporting Standard (MPERS), 113-
187. Retrieved from
http://www.masb.org.my/pdf.php?pdf=MPERS%20Std%202016_Final_23Feb2016.pdf&file_path=uploadfile
2
Audit Committee Institute (2014). Insights into IFRS: An Overview, 17. Retrieved from
https://home.kpmg.com/content/dam/kpmg/pdf/2015/10/insights-into-ifrs.pdf
3
Mike Straneva, Ernst & Young LLP (2015). Valuation hot topics, 46-73. Retrieved from
http://www.ey.com/media/vwcodelibraries/reit2015/$file/valuation-hot-topics-final.pdf

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Current Accounting Standard

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Current accounting standard on the recognition and measurement of goodwill in the

According to Malaysian Accounting Standards Board (MASB), the recognition and

Next, according to Audit Committee Institute (2014), goodwill is recognized as a gain

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