Essay When Companies ' Books Goodwill, An Intangible Asset

Essay When Companies ' Books Goodwill, An Intangible Asset

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Whenever companies’ books goodwill, an acquisition has taken place. The term goodwill is when a company purchase another company for more than the fair market value. The excess of a purchase price paid over the fair market value of the acquired assets, minus the fair market value of assumed liabilities equal to goodwill. Goodwill is an unidentifiable intangible asset. Intangible assets are things that will benefit a company for future economic purposes such as patents, copyrights and trademarks. Unbelievably loyal and efficient employees can be an intangible asset. Those listed are some of the most common intangible assets a company may have on their books.
If you look closely at the assets, they are the ones which could have been beneficial to the company in the past. These types of assets have always been a debatable issue when they appear on a company’s books. The reasoning for this is the way value is determine for the assets. However intangible assets are important and should not be overlooked by a purchasing company. Booking of goodwill is necessary for a company to have accurate financial books.
Calculating the correct value for placement in the buyer’s financial statements is not easy. However if you use one of these methods your numbers should be within the standard range, the Fair Value or the Non-Controlling interest’s method. Some believe the laws in the United State for companies dealing with goodwill are different than other countries, causing United State companies a disadvantage in mergers and acquisitions. Goodwill seems to stand-alone in other countries; there are no standard international methods or tax policies for accounting of goodwill.
So, why do companies book goodwill? According ...

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...ill the company may inquire with the purchase on the financial statement forever. These are areas where companies can commit fraud with posting of goodwill.
This is an area where the Chief Financial Officer could find some ethical issues or become unethical their selves. According to Ram Nidumolu, “the CFO’s primary role is to manage risk and improve corporate performance. CFOs are face with great pressure to reduce costs in the short-term while building the financial foundation for long-term growth. ” (Ram Nidumolu, 2015) Management is required to write down goodwill on the balance sheet annual. Impairment is the accounting term for the transaction. When a long lived asset value has decreased lower than the book value manager must to recognize this lost on the books. This lost will be book on the income statement, which will reduce a company’s profits.

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