Acquirer plc wishes to acquire a 70% stake in Target plc by purchasing 280 million of Targets 400 million 1 ordinary shares. Target currently has retained earnings of 1,360 million and is not expecting to issue any shares or pay any dividends in the immediate future. The purchase of Target will be paid for through a combination of immediate and deferred cash payments. Acquirer will pay 5,000 million of cash at the date of acquisition, plus a further 2,000 million in two years time. Target has some valuable brands, trade names and internet domain names. These are not currently recognised in Targets financial statements. The estimated fair value of these assets is 3,500 million and these brands and domain names are estimated to have a useful life of approximately 8 years. Acquirer has not yet determined whether it should measure non-controlling interest in its subsidiaries on the basis of a proportionate interest in the identifiable net assets of the subsidiary or whether it should use the full goodwill method. The fair value of a 30% holding in Target is estimated to be 2,500 million. Where appropriate you may assume a discount rate of 5% per annum.

1. Discuss whether the IASB should have permitted a choice of accounting treatment in IFRS 3. (20 marks)

2. Explain how the use of estimates affects the calculation of goodwill, with specific reference to faithful representation.(show your calculations) (40 marks)