Changes to Amortisation of Goodwill under TFRS for NPAEs

The most notable change is the extension of the amortisation period for goodwill when a reliable useful life cannot be determined. Previously, such goodwill was amortised over a period of 10 years. However, paragraph 25.8.1 of the revised standards now stipulates a 20-year amortisation period in such cases.

Newly acquired goodwill from 1 January 2023 Entities acquiring goodwill from 1 January 2023 onward should follow these steps to comply with the revised standards:

1. For newly acquired goodwill, determine if a specific useful life can be reliably estimated. If so, amortise the goodwill over that period.
2. For goodwill lacking a determinable useful life, amortise it over 20 years, as per the revised standards.
3. Record the initial recognition of goodwill and the annual amortisation expense in the financial statements.
4. Disclose the accounting policy for goodwill, the useful life, and the amortisation method in the notes to the financial statements.

Example

Company A acquires a business on 1 July 2024, resulting in goodwill of THB 2,000,000. The company determines that a specific useful life for the goodwill cannot be reliably estimated.

Recording:

1. On 1 July 2024, the following journal entry would be recorded:

Dr. Goodwill THB 2,000,000

              Cr. Cash (or other consideration) THB 2,000,000

(To record the acquisition of goodwill)

2. For the year ended 31 December 2024, the amortisation expense would be recorded as follows:

Dr. Amortisation expense - Goodwill THB 50,000 (THB 2,000,000 ÷ 20 years × 6/12 months)

              Cr. Accumulated amortisation - Goodwill THB 50,000

(To record amortisation of goodwill for the year)

The financial statements for the year ended 31 December 2024 would disclose the accounting policy for goodwill, stating that goodwill is amortised over 20 years when a specific useful life cannot be reliably determined.

Changing the amortisation period of existing goodwill

Entities that have been amortising goodwill over 10 years and wish to change the amortisation period to 20 years in 2024 should follow these steps:

1. Assess the remaining useful life of the existing goodwill and determine if the change to a 20-year amortisation period is appropriate.
2. Calculate the cumulative effect of the change in the accounting estimate as of the beginning of the year (1 January 2024).
3. Adjust the opening balances of accumulated amortisation and retained earnings to reflect the change in estimate.
4. Record the revised amortisation expense for the year ended 31 December 2024 based on the new 20-year amortisation period.
5. Disclose the change in the accounting estimate, the reason for the change, and its impact on the financial statements in the notes.

It is crucial to note that these changes are applied prospectively, meaning existing goodwill balances are adjusted from the adoption date forward, without restating financial statements from previous periods.

Example

Company B had goodwill of THB 1,500,000 on its balance sheet as of 31 December 2023, which was being amortised over 10 years. The accumulated amortisation balance was THB 750,000, and the net book value of the goodwill was THB 750,000. The company decides to change the amortisation period to 20 years, effective 1 January 2024.

 Calculation:

Under the 10-year amortisation period, the annual amortisation expense was THB 150,000 (THB 1,500,000 divided by 10 years). With the change to a 20-year amortisation period, the revised annual amortisation expense will be THB 75,000 (THB 1,500,000 divided by 20 years).

The accumulated amortisation balance needs to be adjusted to reflect what it would have been if the 20-year life had always been used. This is calculated as follows:

                                THB 1,500,000 x (number of years amortised ÷ 20)

                                THB 1,500,000 x (5 ÷ 20) = THB 375,000

 The adjustment to accumulated amortisation is therefore as follows:

                                THB 750,000 (old balance) – THB 375,000 (new balance) = THB 375,000

This adjustment is made to opening retained earnings in the year of adoption, 1 January 2024.

Recording:

1. On 1 January 2024, the following journal entry would be recorded:

Dr. Accumulated amortisation - Goodwill THB 375,000

             Cr. Retained earnings THB 375,000

(To adjust accumulated amortisation of goodwill due to change in estimate)

2. For the year ended 31 December 2024, the amortisation expense would be recorded as follows:

Dr. Amortisation expense - Goodwill THB 75,000

               Cr. Accumulated amortisation - Goodwill THB 75,000

(To record amortisation of goodwill for the year based on the new 20-year amortisation period)

 The financial statements for the year ended 31 December 2024 would disclose the change in the accounting estimate, the reason for the change, and the impact on the financial statements (i.e., the THB 375,000 adjustment to opening retained earnings and the reduced amortisation expense for the year).

Conclusion

The revisions to TFRS for NPAEs in 2022 made significant changes to the amortisation of goodwill, extending the amortisation period to 20 years when a reliable useful life cannot be determined.

Entities acquiring goodwill from 1 January 2023 onward should ensure that the goodwill is amortised over the appropriate useful life, not exceeding 20 years when a specific useful life cannot be reliably estimated. Proper initial recognition, amortisation, and disclosure in the financial statements are crucial to maintain compliance with the revised standards.

When changing the amortisation period for existing goodwill, entities must calculate the cumulative effect of the change in the accounting estimate and adjust the opening balances of accumulated amortisation and retained earnings accordingly. The revised amortisation expense should be recorded for the current and future periods based on the new amortisation period. Proper disclosure of the change in accounting estimate, the reason for the change, and its impact on the financial statements is necessary to ensure transparency and compliance.

Entities must carefully assess their goodwill balances, update amortisation periods, adjust accumulated amortisation balances, and ensure proper financial statement disclosures. By understanding and following these guidelines, entities can navigate the changes effectively and maintain compliance with the revised standards. Proper accounting treatment and disclosure will not only ensure compliance with the standards, but also provide stakeholders with accurate and relevant information about the company’s financial position and performance.

Reference (in Thai):

TFRS for NPAEs (Revised 2022) TFAC website