Acquisition accounting

The process of recording a takeover: the acquirer measures the identifiable assets and liabilities acquired at fair value, and anything paid above that becomes goodwill.

Paying ₹1,800 crore for net assets fairly valued at ₹1,150 crore creates ₹650 crore of goodwill.

The allocation is where a great deal of judgement lives. Assigning more of the price to identifiable intangibles with finite lives creates amortisation that reduces future profit; assigning more to goodwill avoids the charge but creates an impairment risk instead.

Comparing the acquirer's reported profit before and after a large acquisition needs this note to make sense.