Goodwill: Goodwill and internally Generated Goodwill Essay

Submitted By Elaine919
Words: 2951
Pages: 12
Open Document
Word count: 2467
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
Show More

Related Documents: Goodwill: Goodwill and internally Generated Goodwill Essay

Goodwill Industries Essay

Goodwill Industries International Each organization has its own structure, and breaks down the different sections of the organization based on that structure to best help the clients. Goodwill is no different. Goodwill’s organizational structure allows them to communicate from people at the top of the organization down to each store level. In any organization it is important for the organization to have some sort of structure to operate daily. Organizational Structure Goodwill’s organizational…

Words 2204 - Pages 9

FINANCIAL REPORTING draft kf2 Essay

FINANCIAL REPORTING TASK - 1: Usefulness As per Investopedia, Financial Statements are the sets of accounts which records all financial activities of business entity. The fundamental objective of financial statement is to provide financial information of business entity to the potential and existing investors, lenders or other creditors (IASB Framework). Financial statement provides information about the financial position (balance sheet), performance i.e. changes in economic resources…

Words 2774 - Pages 12

Financial Accounting Essay

Table of Contents Executive Summary 3 Introduction 4 Cash Flow 5 Reasons behind choosing Cash Flow of Crown Plaza limited 5 1.Cash and Cash Equivalents and disclosure 5 2.Classification of cash flows 6 3.Notes attached to the Cash Flow statement of Crown Plaza ltd. 7 NOTES : 7 Conclusion For Cash Flows of Crown Plaza Limited 10 Leases of Crown Limited 10 Reasons for Choosing Lease of Crown Plaza Ltd. 10 Accounting Standard for Lease 10 Compliance of Crown Plaza to this…

Words 4568 - Pages 19

Revenue Segment 3: Review Of Accrual Accounting

Revenue Module 1 Segment 1 Public Companies IFRS Private Companies GAAP for private enterprises, IFRS, nothing at all Segment 2 Asset Provide a future benefit; it must be probable the benefit will be enjoyed Its Controlled (Be able to control rights and use of it) Be the result of a transaction or event that has already occurred Be measurable Liability The result of a past transaction or economic event Require some kind of economic sacrifice to settle Segment 3 – Review of Accrual…

Words 3684 - Pages 15

Essay about Financial Analysis of Walgreens vs. Cvs

Executive Summary The initial intent of this analysis was to identify changes in accounting methods within the financial statements of Walgreens and CVS, as well as to compare and contrast their financial statements, in order to draw conclusions about which company had better earnings. However, in the process of this analysis, with the exception of a minor change to lease accounting by Walgreens, there were no major changes in accounting methods identified. In examining the financial statements…

Words 7290 - Pages 30

Essay Accounting Notes - Issues in Financial Reporting

superannuation liability, a $2 million increase in deferred tax assets and a $3 million decrease to opening retained earnings[11] for the year ended 30 September 2005.[12] AASB138 Intangible Assets Upon transition to AIFRS, AASB138 requires any internally generated intangible assets, previously capitalised under AGAAP, to be written off as an expense. The subsequent reversal of assets recognition, with a corresponding expense incurred, significantly affects the accounting profit and equity upon the transition…

Words 2125 - Pages 9

Non-Current Assets: Every Asset That Is Not Present

Non-current assets: every asset that is not current. Current assets: realised/settled in entity’s normal business cycle, purpose of trading, and realised/settled within 12 months. They may include: property, plan and equipment, intangible assets including goodwill, investment property, agricultural produce and biological assets. Carrying amount: amount to which an item is carried or shown in the financial statement; amount at which the asset is recognised after deducting any accumulated depreciation and accumulated…

Words 6334 - Pages 26

Essay about Similarities and Differences. a Comparison of Ifrs and Us Gaap

Similarities and Differences A comparison of IFRS and US GAAP October 2007 PricewaterhouseCoopers’ IFRS and corporate governance publications and tools 2007 IFRS technical publications IFRS Manual of Accounting 2008 Provides expert practical guidance on how groups should prepare their consolidated financial statements in accordance with IFRS. Comprehensive publication including hundreds of worked examples, extracts from company reports and model financial statements. IFRS News Monthly…

Words 33240 - Pages 133

Essay on Walgreen Versus Cvs

Executive Summary The initial intent of this analysis was to identify changes in accounting methods within the financial statements of Walgreens and CVS Caremark, as well as to compare and contrast their financial statements, in order to draw conclusions about which company had also have better earnings. However, in the process of this analysis, with the exception of a minor change to lease accounting by Walgreens, there were no major changes in accounting methods identified. In examining the financial…

Words 6558 - Pages 27

Essay on Sample 20exam 20with 20solutions

Ltd sold machinery to Arteta for $80,000. The machinery had cost Rosicky Ltd $100,000 and had a carrying amount of $60,000 at the date of transfer. The remaining useful life of the machinery at 30 June 2010 was 5 years. d) Arteta Ltd uses the full goodwill method. The fair value of the non-controlling interest at the acquisition date was $66,000. e) The tax rate is 30%. f) The annual reporting date of Arteta group is 31 December. 2 The financial statements of the two companies at 31 December 2011…

Words 5353 - Pages 22