Where the price went.
And where it came back to bite.
One acquisition. Rs 1000 cr paid. Here is what the balance sheet recorded, and what happened three years on.
| The deal |
Amount |
| Price paid for the target | 1000 cr |
| Fair value of net assets bought | 400 cr |
| Goodwill booked (the premium) | 600 cr |
| Goodwill as share of net worth | 50 pct |
Ind AS 36 says goodwill is not amortised. It is tested every year against what the unit is really worth. Three years on, the acquired business underperforms and the 600 is reassessed to 250. The company writes off 350 cr in a single quarter. Net worth drops from 1200 to 850. No cash moved that day. The cash had already left three years earlier, the day they overpaid.