The issue of accounting treatment for goodwill was beginning during the year 1880-1929. The accounting of goodwill was emerged when the form of business was changed from sole proprietorship to corporations as according to Hughes, The development of goodwill was paralleled with the development of business enterprise. (As cited by Garcia, 2006) During that period, the useful life of goodwill has become a major accounting issue. Dicksee claims that goodwill was a permanent asset in balance sheet and an asset that is undesirable to retain, thereby he proposed to immediate write off to capital. (As cited by Garcia, 2006) However, there are some writers who support the conservative approach which is goodwill should gradually amortized against its income. Dicksee’s argument is rejected by Hatfield on the ground of inconsistent with valuation methods based on the capitalization of a finite series of excess earning. (As cited by Garcia, 2006)
Furthermore, during the year 1929-1959, the world is suffered by the Great Depression. Accounting Research Bulletin No.24 is favor towards conservatism and strengthening of accounting principles. Amortization supporter based their arguments in the historical cost principle and principle of matching cost with revenue gave them a crucial advantage as recognition of goodwill is prohibited by cost principle. (Garcia, 2006) Paton claims that goodwill is considered as cost that is presumably expiring and should be assigned to future revenues. (As cited by Garcia, 2006) Moreover, the matching principle that was established requires goodwill to be amortized against its income. As Walker argued, goodwill should allocate to its income which is similar with the proportion of the cost of any other asset. (As cit...
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...cash-generating units that will be benefit from the synergies of the combination. Each cash-generating unit is subject to a yearly impairment test.
Conclusion, the debate regarding recognition and measurement of goodwill remain with no solution in sight in the foreseeable future. There are some researchers believe that the impairment test of goodwill method able to reflect the better information in financial statements but no one can assure that this method really provides better information about goodwill or is just a new opportunity to practice creative accounting. (Feleaga, Feleaga, & Dragomir, 2011)
Works Cited
Garcia, C. (2006). How Accounting for Goodwill relies on Underlying Assumptions: A Historical Approach.
Feleaga, L., Feleaga, N., & Dragomir, V. D. (2011). Accounting for goodwill: A Historical review. European Journal of Management , United Kingdom.
[1] Noreen, Eric W., Brewer Peter C., et al., Managerial Accounting for Managers, Second Edition, McGraw-Hill/Irwin, New York, NY, 2011.
Although Goodwill International is successful, it is not efficient and needs to implement additional strategies to improve its efficiency. There are a number of recommendations made in this paper to assist Goodwill International to enhance its efficiency. Some of the strategies include: improvement of its communication strategy, enhancement of its fiscal health, implementation of new marketing strategies, introduction of employee performance measurement techniques, and changing its donation policies to include more items.
In order to complete the surplus test, a company must determine the value of its net assets. Delaware law does not prescribe a method for such valuation, and while there is generally a book value for a company’s net assets based on generally accepted accounting principles, the book value does not necessarily reflect the current market value of assets and liabilities. Delaware courts have recognized this conflict and have held that a board may determine their assets’ current value when determining whether the surplus test has been satisfied. See Morris v. Standard Gas & Elec. Co., 63 A. 2d 577, 578 (1949). Absent fraud or bad faith, as long as the Board demonstrates “great care to obtain data” and exercises “informed judgment”, a court will generally not interfere with such valuation. Id. Directors do not need to obtain a formal appraisal to arrive at the valuation, but must “evaluate the assets on the basis of acceptable data and by standards which they are entitled to believe reasonably reflect present values.” See Klang v. Smith’s Food & Drug Centers, Inc., 702 A. 2d 150, 152 (Del. 1997). Therefore, intangible assets (e.g., goodwill) can play a critical role in determining whether a company passes the surplus test. For example, a board could reasonably determine that a company that would otherwise fail the surplus test based on the value of its assets reflected on its balance sheet has surplus by attributing additional value to its intangible
Purpose: Define goodwill and determine how goodwill would be applied for Union Corporation. Additionally, the annual goodwill impairment test will be conducted for each of Union Corporation’s two reporting units.
The carrying value of goodwill and many other intangible assets was 28.1 billion and 9.8 billion as of December 31,2014. Goodwill unswervingly impacts the asset turnover ratio by cumulative amounts, hence the reason why it is incessantly beneficial to grasp what the adjusted total asset turnover is and how it compares to other businesses within the industry.
Wikipedia defines Goodwill as “the value of an entity over and above the value of its assets . . . the intangible but quantifiable “prudent value” of an ongoing business beyond its assets, resulting perhaps from the reputation the firm enjoyed with its clients”. Goodwill to most of us is the capacity of a business to earn profits in the future. It is what attracts customers to continually patronize a certain business. If one has to put a monetary value on goodwill, it is the amount one pays in acquiring a business that is in excess of the fair market value of the business’ net assets.
When analysing the effect of an impairment loss on an entity’s reports it can be seen that there are a number of material
The FAS has made changes throughout the years in the way to account for goodwill. Goodwill is when a company attempts to merge with another company to obtain the valuable intangible assets. These assets are anything that can 't be seen or touched. Valuable intangibles can be anything like a company name because it is well known. Many times companies will decide to merge because it can be beneficial to them to merge with well-known entities. This can also be less costly and less time-consuming versus building a brand new business on its own. On many occasions, gooodwill is amortized on accounting records. Amortization is not the most favorable approach for companies who are trying to attract investors. This because when amortization is not present in the books, it means that there aren 't high physical cash profits for shareholders.
Wolk, H., Dodd, J., & Tearney, M. (2003). Accounting Theory: Conceptual Issues in a Political and Economic Environment (6th edition ed.). South-Western College Pub.
Ryan, S., G., Herz, R., H., Iannaconi, T., E., Maines, L., A., Palepu, K., Schipper, K., Schrand, C., M., Skinner, D., J. & Vincent, L. n.d. American Accounting Association’s Financial Accounting Standards Committee Response to FASB Request to Comment on Goodwill Impairment Testing Using the Residual Income Valuation Model,
Heisinger, K., & Hoyle, J. B.(2012). Accounting for Managers. Creative Commons by-nc-sa 3.0. Retrieved from: https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=137
Accounting has been a living part of history since the Neolithic period and remains a prevalent and ever-evolving profession still to this day. This essay therefore proposes to look at the significance and role of history specifically related to the accountancy field. In order to substantiate this claim of the importance of accounting history, numerous benefits of accounting history will be presented. Factors such as the use of historical research and its availability thereof to constantly develop accounting policies will be discussed as well as how historical accounting practices can be used to understand current practice and assist in the training of individuals in the accounting field. Lastly, the importance of history in the development
Marshall, D., McManus, W., & Viele, D. (2004). Accounting: What the numbers mean. [University of Phoenix Custom Edition e-text]. New York, NY: McGraw-Hill Companies.
When compared to the physical capital maintenance concept, the financial capital maintenance concept is the better choice for standard setting when distinguishing between a return of capital and a return on capital. The main argument in favor of physical capital maintenance is that it provides information that has better predictive value, confirmatory value, and is more complete. However, due to agency theory, prospect theory, and positive accounting theory, neutrality and completeness under physical capital maintenance would be impaired so gravely that predictive value and confirmatory value become inefficacious. As a result, financial capital maintenance, with its use of historical cost, is able to provide information to decision makers with stronger confirmatory value and predictive value.
The history of accounting I feel is important in the learning, understanding, and developing of my foundation for my accounting career. In this report you will learn about the development of accounting. You will learn about the people who influenced accounting the most throughout the years. You will learn how accounting came about and how it was used in the ancient times. You will learn about the invention of the double-entry bookkeeping processes. You will learn how things were done before the birth of the double-entry bookkeeping process. You will learn about Luca Pacioli and the Summa. You will also learn about modern accounting and ACAUS.