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A. Current requirements
1. Definition of goodwill
Goodwill is “an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.” (AASB 138, para.11)
It can be divided into two categories: internally generated goodwill (IGG) and purchased goodwill. IGG arises form internal operations and differs from the goodwill acquire in business combination (Dagwell, Wines & Lambert 2012, p 207) Purchased goodwill refers to the excessive parts of the payment of acquisition and the total net assets during the process of business combination.

2. Recognition of goodwill
2.1 internally generated goodwill
Internally generated goodwill shall not be recognized as an asset by entity because it is difficult to identify and measure reliably. (AASB 138, para.48) IAS 38 has the similar rule that internally generated goodwill should not be recognized because of its impossibility of identification and difficulty of reliable measurement. (IAS 38, p 1)
2.2 purchased goodwill
“Goodwill which is purchased by entity must be recognized as asset at acquisition.” (AASB 1013, para.5) The reason of this is that purchased goodwill can be measured reliably than internally generated goodwill. Additionally, there is a recognition principle that “as of the acquisition date, the acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree.” (AASB 3, para.10)
However, the separable intangible assets acquired by entity with other assets or liability in a contract separable should recognize separately form goodwill. (AASB 138, para.36)

3. Measurement of goodwill
3.1 Initial measurement of goodwill
AASB 3 requires the acquirer to measure goodwill at the amount of the fair value of the acquiree’s equity interests rather than the acquirer’s. (AASB 3, para.33) In addition, “the acquirer shall use the acquisition-date fair value of the acquirer’s interest in the acquiree in place of the acquisition-date fair value of the consideration transferred.”(AASB 3, para.32)
Referring to the calculation of goodwill, initial goodwill should be measured at the cost of acquisition + non-controlling interests + previously interests in the acquiree at fair value –Net FV of acquiree’s identifiable assets and liabilities. (IFRS 3, para.33)
3.2 Subsequent measurement of goodwill
After goodwill is initially recognized, entities need to subsequently consider about the impairment of goodwill. An impairment loss should be recognized if the carrying amount is larger than its recoverable amount. (AASB 136, para.59).
A notable change between IFRS 3 and US GAAP is the replacement of amortization of goodwill by impairment tests. In accordance with IFRS 3, goodwill does not need to be amortized but be tested for “impairment annually, or more frequently if there is an indication that it may be impaired.” (AASB 136, para.90) Then the carrying amount of goodwill needs to be written down.
In addition, AASB 136 requires that goodwill should be allocated to acquirer’s cash-generating units (CGU), or groups of cash-generating units instead of reporting units. (AASB 136, para.80) The impairment loss for CGU should be recognized only if the carrying value exceeds the recoverable value, and when the amount of impairment loss is larger than the carrying value, the excessive impairment loss should be allocated to other assets. (AASB 136, para.104)
4. Disclosure of goodwill
Acquirer should disclose information that relating to information users to analyze a business combination. (AASB 3, para.59) This includes the acquisition date, fair value of consideration, intangible asset, etc..(AASB 3, B64)
As for goodwill, some items need to be disclosed as follows:
(1) fair value of the equity interest held by the acquirer in the acquiree
(2) the amount of impairment loss of goodwill and