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Goodwill - Essay Example

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Goodwill

"Pooling of Interests" or "Purchase Accounting Method". Under the first method, the Goodwill acquired on account of merger and acquisitions use to get amortized in equal installments over a period of 40 years. Under the second method, the Goodwill was considered as a permanent asset, which would not reduce in value with the passing of years, thus enabling the companies to test the same for impairment on an annual basis in order to ensure that fair value of the Goodwill was equal to its book value. Apart from the annual review, the impairment could also be exercised in instances where it indicated that the carrying amount of Goodwill needs reassessment.
The process of assessment of impairment consists of two steps. Firstly it involves comparison of the intrinsic value of a business with its carrying amount including the Goodwill. Incase the book value exceeds the fair value, then nothing needs has to be done. On the other hand, if the fair value is lesser than the book value, impairment would be carried out. Under the US GAAP, the fair value of Goodwill is calculated by allocating fair values to unit assets and liabilities. In the case of impairment of Goodwill, same should be charged to the Profit and Loss Account. The International Accounting Standards also followed the footsteps of US GAAP concept.
The basic difference between the UK and the International Accounting Standards is that in the former the Companies were allowed to opt either of the two op ...Show more

Summary

Goodwill is the difference between what a company pays for an acquisition and the book value of the net assets of the acquired company. USA and UK have adopted accounting treatments for Goodwill that have sometimes been similar, and sometimes markedly different…
Author : francesca03
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