1826 Words8 Pages Free Essays - Accounting Essays Accounting for Goodwill Under IFRS 3 In this essay I will be discussing the underlying problems with accounting for goodwill as a result of business combinations, which will include the comparison between the requirements of FRS 10 and IFRS 3 and also how this International standard affects the preparers and shareholders. IFRS 3 defines goodwill as: “future economic benefits arising from assets that are not capable of being individually identified and separately recognised”. The definition effectively confirms that the value of the business overall is more than the sum of the accountable and identifiable net assets.…show more content…
IFRS has changed the rules. IFRS 3 is introduced due to the rising significance of intangible assets as an economic resource. As businesses in the UK turn into increasingly service-orientated, intangible assets will make up a growing percentage of the value of many acquired businesses. Nevertheless IFRS 3 is much more than an accounting convention. The transparency promoted by this standard will allow analysts extraordinary insight into the performance of the purchased business. Shareholders will be in a better position to understand what they have actually got for their money. The implications for preparers are that they must understand and be ready to meet the challenges that IFRS 3 signifies, by making sure they have the necessary provisions in place such as training and equipment. One of the main concerns is that measuring intangibles is not simply a one-off process. When a business is purchased, a process known as a purchase price allocation is necessary to assign the purchase consideration across the assets of the business. Only once the fair values are calculated for the intangibles, the preparers can determine the extent of the goodwill. Business will now as a result have to carry out impairment tests to check and, if necessary, correct the value of goodwill and long-life intangibles. For example, if a
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