• Internal Code :
  • Subject Code : ACCT 5030
  • University : curtin university
  • Subject Name : Financial Accounting

Table of Contents


1. The Case of Portuguese –Goodwill recognition and treatment of intangibles in business combinations 

a) Goodwill and Intangibles. 

b) Recognition of the goodwill and intangibles and measure according to IFRS3-Business Combinations, and IAS 38-Intangible Assets. 

IFRS 3 Business Combinations.

IAS 38 - Intangible Assets.

c) Issues in the accounting for goodwill and intangibles - the Portuguese Case. 

d) Main findings in this journal paper- The Portuguese Case. 

e) Impacts of the findings on the financial performance of companies. 

2. Evaluation of the accounting policies of the goodwill and the intangibles of an Australian listed company - Rio Tinto. 

a) Introduction. 

b) Accounting policies of goodwill and intangibles. 

c) Analysis of goodwill and intangibles of two financial year 

d) Evaluation of the financial performance of the current year 

e) Impairment loss of goodwill and its impact on the financial performance of Rio Tinto. 




The report has contained information about the treatment of the goodwill and other intangible assets. Proper analysis of these transactions is made and comparison between goodwill and intangible assets considered. Two questions are answered based on it and question 1 contains the journal paper case study and question 2 is about the company i.e. Rio Tinto Group.

1. The Case of Portuguese –Goodwill Recognition and Treatment of Intangibles in Business Combinations

a) Goodwill and Intangibles

The difference between goodwill and intangibles as:

The Goodwill is also an asset of the company which is covered under the head of other Intangibles in the statement of affairs of the company. In the course of the acquisition of any company, the premium amount has been paid in excess or over the fair value of the acquired assets to the transferor entity is commonly referred to as goodwill. It is associated with the business or with the person; it cannot independently be purchased or sold in the market. According to the relevant accounting standard, it is not written off like other intangible assets but it can be impaired due to internal factor and external factors (Carvalho, Rodrigues and Ferreira 2016). With some of the example such as brand reputations, the loyalty of the customer in the company and other non-quantifiable intangibles are covered under the goodwill.

Intangibles are assets which do not have its physical substance. This can be built up by the organization in the long run of operations or which can be purchased by the company to operate in the market. Intangibles are to be separately shown in the entity’s balance sheet. It contains assets like goodwill, trademark, patent, brand, license, copyrights and other intangibles. Intangible assets except goodwill are written off during the period or the life term.

b) Recognition of the goodwill and intangibles and measure according to IFRS3-Business Combinations, and IAS 38-Intangible Assets

IFRS 3 Business Combinations

IFRS 3 assists in recognizing and measuring the goodwill acquired in event of the business combination or gain on a bargain purchase. It requires recognizing the goodwill on the date of acquisition (Andréet al. 2018). The acquirer of the business recognizes the goodwill using the fair value of equity interests of acquiree on the acquisition date.

Goodwill is to be measured where an excess of the aggregate amount of the consideration paid which is fair value and amount of minority interest over net identifiable assets and liability measured (Carvalho and Ferreira 2016).

IAS 38 - Intangible Assets

IAS 38 describes that an entity should recognize other intangible assets whether they are acquired or self-generated by that organization only if there is the probability (i.e. based on the reliable reason related to that intangible assets will exist over the life of the intangible assets) that future economic benefit related to that intangible assets will generate to the entity and the cost of those intangible assets of the entity can be measured (Wen and Moehrle 2016).

Initially, intangible assets are to be measured at the cost but after initial or in the subsequent model it can be measured either at cost model or the revaluation method. In the revaluation method, the other intangible asset is revalued based on the fair value of the intangible assets which is subsequently amortized or impaired if the conditions exist (Carvalho, Rodrigues and Ferreira2016).

c) Issues in the accounting for goodwill and intangibles - the Portuguese Case

The literature review depicts the issues faced in the accounting for the transaction of goodwill and intangible in the business combination. It guides that accounting standard suggests a different type of accounting for the identifiable asset in the business combinations.

The issues are related to the costing of goodwill and intangible assets. Many of the author and report guide different acquisition cost for the intangibles. Different factors contribute to the accounting of the intangible and the goodwill. The author analyzes that 48% acquisition cost attributed to the goodwill, 24% to tangible assets and 28% to the identifiable intangible assets (Johansson et al. 2016). Issues identifiable mainly related to the identifications of the attributable cost to the goodwill and intangibles and also associated accounting condition and model in the accurate disclosure in the statements of affairs of the entity.

As the majority of the identifiable intangible assets are subject to the systematical amortization and goodwill is subject to impairment test, an impairment test is based on the internal and external indications (Carvalho, Rodrigues and Ferreira 2016). Goodwill is recognized in high magnitude by adding all the identifiable intangible which is generally not to be shown to the users of the financial statements or information. As the subjectivity and the complexity of the accounting of the business combinations, it shows the importance of the disclosure requirements associated with these types of operations.

d) Main findings in this journal paper- The Portuguese Case

The analysis made in the journal is during the year 2005 to the year 2009. The study is conducted by the Portuguese group with the securities that are traded on the Euronext Lisbon with the relevance of the recognition of the goodwill amount and value of the identifiable intangible asset and their characteristics, types and accounting in the different business group. The accounting standard applicable to the business combinations transactions is IFRS 3since 2005. This study indicates that the companies don’t take appropriate actions in measuring the intangible assets in respect to the combinations and also their accounting treatment to the other intangible assets are separate than business combination (Carvalho, Carla, and Ferreira 2016).

Journal paper discusses the issue and matter involved in the accounting and recognizing the goodwill and the identifiable assets in the business combination transactions (Saeidi et al. 2016). The authors stated in their articles about the recognition to the goodwill and intangible and they describe the proportional part of the acquisition cost related to the goodwill, tangible and intangible assets. They also took into considerations about disclosure requirements of the financial information in the balance sheet that can influence the user decision.

e) Impacts of the findings on the financial performance of companies

During the year 2004 to 2009, the study was made on various companies. The analysis depicted the procedure followed by the company and most of the procedure is the same. It shows the companies are regularly following the disclosure requirements. It can be concluded that the goodwill is recognized continuously. Companies do not disclose the information to the user about the intangibles. The companies are highly complying with the business combinations, proper disclosure made, other identifiable assets also measured. The requirements about the IFRS 3 also complied. The analysis also shows that around 90% of business combinations reflect the rise in the goodwill.

2. Evaluation of The Accounting Policies of The Goodwill and The Intangibles of An Australian Listed Company - Rio Tinto

a) Introduction

Rio Tinto is an Australian company listed on Australian stock exchange. It is Anglo- Australian and multinational company which are standing at the second position in the operations of metal and mining, production of iron ore, diamond, uranium, copper and gold (Thibeault, Pascal and Martin 2016). It mainly focuses on mining and processing of earth resources like copper, uranium, gold, diamond, copper etc. these productions of resources are utilized for the production of steel, cars, smartphones, wind turbine and other household products that are used by the world.

b) Accounting policies of goodwill and intangibles

Rio Tinto has to prepare its CFS i.e. consolidated financial statements and it has also to comply with the obligations and requirements regarding the consolidation of the financial statements with other business combinations while preparing the financial statements and annual reports for the user of the financial information. 

The company has to follow IFRS 3 as there is a recent amendment in the definition of the business combination which also impacts the goodwill and other intangibles (Perfetto, Concetta and Sánchez 2016). The company does not amortize the goodwill but it conducts the test of the impairment of the goodwill before 2004, it the policy of the company to follow the US GAAP. The purchased intangible assets are accounted for by the company at cost initially. The company follows the IAS 38 for the accounting of the intangibles.

Other accounting policies are followed by the company as per the annual report of Rio Tinto group is IFRS 3 (amendments), IAS-1 and IAS-8 (definition of the materiality), other accounting estimates and policies regarding the impairments.

c) Analysis of goodwill and intangibles of two financial year

The analysis of goodwill and intangibles assets of Rio Tinto has been done based on the last two financial year (2019 and 2018). The group has used equity accounted units (EAU), has taken into consideration the goodwill at the time acquisition hence the goodwill has increased in the year 2019 by the amount of $10000000. This can be seen in the comparative table shown below. intangible assets of the company are to be amortized over the life of the intangible assets but as far as the goodwill is concerned it will appear in the balance sheet until there is any indication of internal and external factors. If the indications exist then goodwill is impaired accordingly. The ratio is shown below to compare the goodwill and intangible assets of the company.

Analysis of goodwill and tangibles of Rio Tinto “000"









Intangibles assets




Goodwill/intangible ratio




d) Evaluation of the financial performance of the current year

Rio Tinto Group has been provided overall satisfactory responses in respect of operating performance (Annual report of Rio Tinto 2019). Underlying income of Rio increased to $10.4 billion wherein 2018, it was $8.8 billion. Accordingly, underlying EBITDA increased to $21.2 billion with a margin of 47% in the financial year 2019. The positive result in this financial performance of the company was due to the high demand generated of its high-quality product and shows a robust demand in the market. The company has also generated acquiring cost and the element in the cost has also included the goodwill segments. The impairment of the intangible assets as per the annual report of Rio Tinto group 2019 has been allocated to the intangible assets as shown in the profit and loss statement (Su and Wells 2015). The allocated amount to the impairment of the intangible assets is $ 1 million as shown and the operational cost of the company is $27307 million. In the current financial year 2019, the company has made the net operating cost of $27307 million. The comparison of the intangible assets and net operating cost can be compared as per the table given below.

Statement showing amortization expenses and Operating expenses.


US $ "million"

Amortization of intangible assets


Net operating expenses


e) Impairment loss of goodwill and its impact on the financial performance of Rio Tinto

In the analysis of the annual report, 2019 of Rio Tinto, there is not any transaction which indicates the impairment loss on the goodwill. But it has acquired the assets which allocated to the goodwill $1million in the intangible assets. The impairment loss occurs when the fair value of the assets is below the carrying value of assets of the company. The impairment loss shall be shown in the income statement and simultaneously it reduces the value of the assets (Bugeja, and Loyeung 2015).

Treatment of the impairment loss on the goodwill effect is to be given by the company in the financial statement of the company. The impairment loss may also be reversed when there is a change in the estimation. The goodwill value of the company shall be decreased accordingly in the statements. The balance amount shall be debited in the profit and loss account (Filip, and Paugam 2015). All these effects shall be according to AASB 1013- Accounting for goodwill.


The proper understanding of the goodwill and other intangible assets has been discussed. Accounting treatment and their effects in the financial statements described shows any impairment loss should be properly disclosed.


André, Paul, DionysiaDionysiou, and IoannisTsalavoutas. "Mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’ forecasts." Applied Economics 50, no. 7 (2018): 707-725.

Bugeja, Martin, and Anna Loyeung. "What drives the allocation of the purchase price to goodwill?." Journal of Contemporary Accounting & Economics 11, no. 3 (2015): 245-261.

Carvalho, Carla, Ana Maria Rodrigues, and Carlos Ferreira. "The recognition of goodwill and other intangible assets in business combinations–the Portuguese case." Australian Accounting Review 26, no. 1 (2016): 4-20.

Filip, Andrei, Thomas Jeanjean, and Luc Paugam. "Using real activities to avoid goodwill impairment losses: Evidence and effect on future performance." Journal of Business Finance & Accounting 42, no. 3-4 (2015): 515-554.

Johansson, Sven-Erik, Tomas Hjelström, and Niclas Hellman. "Accounting for goodwill under IFRS: A critical analysis." Journal of international accounting, auditing and taxation 27 (2016): 13-25.

Perfetto, Maria Concetta, and Alfonso Vargas-Sánchez. "Towards a Smart Tourism Business Ecosystem based on Industrial Heritage: research perspectives from the mining region of Rio Tinto, Spain." Journal of Heritage Tourism 13, no. 6 (2018): 528-549.

Saeidi, SayedehParastoo, SaudahSofian, ParvanehSaeidi, SayyedehParisaSaeidi, and SeyyedAlirezaSaaeidi. "How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction." Journal of business research 68, no. 2 (2015): 341-350.

Su, Wun Hong, and Peter Wells. "The association of identifiable intangible assets acquired and recognised in business acquisitions with postacquisition firm performance." Accounting & Finance 55, no. 4 (2015): 1171-1199.

Thibeault, Pascal, HervéMézin, and Olivier Martin. "Rio Tinto AP44 cell technology development at alma smelter." In Light Metals 2016, pp. 295-300. Springer, Cham, 2016.

Wen, He, and Stephen R. Moehrle. "Accounting for goodwill: An academic literature review and analysis to inform the debate." Research in Accounting Regulation 28, no. 1 (2016): 11-21.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Financial Accounting Assignment Help

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