Last reviewed: July 2026.
In consolidated accounts, acquisition-date net assets determine goodwill, while only post-acquisition profits contribute to group retained earnings. Mixing pre- and post-acquisition amounts is a common source of consolidation errors.
The analysis begins on the date the parent obtains control, not necessarily the beginning of the subsidiary’s financial year.
Pre-acquisition versus post-acquisition
| Amount | Consolidation treatment | Reason |
|---|---|---|
| Subsidiary equity at acquisition | Included in acquisition-date net assets | It existed before control was obtained. |
| Fair value adjustments at acquisition | Included in acquisition-date net assets | IFRS 3 measures identifiable net assets at acquisition. |
| Profits after acquisition | Allocated to parent and NCI | They are earned while the subsidiary is controlled. |
| Pre-acquisition dividend | Usually affects investment or acquisition analysis | It represents value existing before acquisition. |
| Post-acquisition dividend | Eliminated within the group; affects NCI where applicable | It distributes post-acquisition equity. |
Goodwill formula
A common full-goodwill formula is:
Consideration transferred + NCI at acquisition + previously held interest − fair value of identifiable net assets acquired
A positive amount is goodwill. A verified negative amount is recognised as a bargain purchase gain under IFRS 3.
Acquisition-date net assets
Start with subsidiary share capital and reserves existing at acquisition. Adjust for fair values, identifiable intangible assets, deferred tax and other acquisition accounting items.
Do not use the subsidiary’s unadjusted book equity when IFRS 3 requires fair value adjustments.
Worked acquisition example
Parent P acquires 80% of S for 900,000 CU. NCI fair value is 210,000 CU. At acquisition, S has share capital of 500,000 CU, retained earnings of 250,000 CU and a land fair value uplift of 100,000 CU.
Acquisition-date net assets are 850,000 CU.
Goodwill is:
900,000 + 210,000 − 850,000 = 260,000 CU
Post-acquisition profit
At the reporting date, S retained earnings are 370,000 CU. Before other adjustments, post-acquisition retained profit is:
370,000 − 250,000 = 120,000 CU
P’s 80% share is 96,000 CU and NCI’s 20% share is 24,000 CU.
Fair value depreciation adjustment
If a depreciable asset is uplifted at acquisition, additional depreciation reduces post-acquisition profit.
For a 100,000 CU uplift with ten-year remaining life, additional annual depreciation is 10,000 CU. If one year passes, adjusted post-acquisition profit becomes 110,000 CU.
Mid-year acquisition
When acquisition occurs during the year, identify profits earned before and after the acquisition date. Time apportionment may be used only when reasonable and no evidence indicates uneven performance.
Use management accounts or transaction data when seasonal or one-off items make straight-line apportionment misleading.
Intragroup unrealised profit
Post-acquisition profits may require adjustment for unrealised profit in closing inventory or non-current assets.
If the subsidiary is the seller, the adjustment can affect the subsidiary’s post-acquisition profit and therefore NCI. If the parent is the seller, it normally affects parent retained earnings.
Dividends
Intragroup dividends are eliminated from consolidated income. A dividend received from pre-acquisition profits can affect the parent’s separate investment accounting and may indicate recovery of part of the investment, depending on the applicable requirements.
Review the dividend accounting guide.
Non-controlling interest
NCI at reporting date begins with acquisition-date measurement and is adjusted for its share of post-acquisition profit, OCI, dividends and other equity movements.
Goodwill impairment allocation depends on whether NCI was measured at fair value or proportionate share and on the cash-generating-unit analysis.
Goodwill impairment
Goodwill is not amortised under full IFRS. It is allocated to cash-generating units and tested annually and when impairment indicators exist.
See the goodwill accounting guide.
Parent’s separate financial statements
In separate statements, the parent accounts for the investment under IAS 27 using cost, IFRS 9 or the equity method as permitted. The investment balance is not shown in the consolidated statement because it is eliminated against subsidiary equity.
Group retained earnings working
A practical working starts with parent retained earnings, then adds the parent’s share of subsidiary post-acquisition results and other consolidation adjustments.
Pre-acquisition reserves never become group retained earnings merely because they appear in the subsidiary’s closing balance.
Acquisition-date measurement period
IFRS 3 permits provisional amounts to be adjusted during the measurement period when new information relates to facts existing at acquisition. The period cannot exceed one year from acquisition.
After the measurement period, corrections and estimate changes follow the applicable Standards.
Connection to group accounts
The full consolidation process also eliminates intragroup balances, sales, expenses and unrealised profits. Review the group accounts guide.
Changes in ownership without loss of control
After control is obtained, a purchase or sale of an additional ownership interest that does not cause loss of control is generally treated as an equity transaction. It does not create new goodwill.
Adjust parent equity and NCI for the difference between consideration and the change in NCI carrying amount.
Acquisition costs and consideration
Professional and advisory acquisition costs are generally expensed, while costs of issuing debt or equity follow the relevant financial-instrument requirements. Contingent consideration is measured and subsequently accounted for according to its classification.
Common mistakes
- using closing retained earnings in the goodwill calculation;
- adding pre-acquisition profit to group retained earnings;
- ignoring acquisition-date fair value adjustments;
- failing to adjust extra depreciation;
- time-apportioning seasonal profits without evidence;
- allocating parent-sold unrealised profit to NCI;
- leaving the parent’s investment in consolidated assets.
Key takeaway
Goodwill uses acquisition-date net assets; group retained earnings use post-acquisition performance. Fix the acquisition date first, then adjust fair values, depreciation, intragroup profits and NCI.
Official references: IFRS 3 Business Combinations, IFRS 10 Consolidated Financial Statements, and ACCA simple consolidated financial statements.