Essay on Achieving Goodwill in a Business

1160 Words5 Pages
Goodwill, as explained in the text, is an accounting term to signify the potential to earn a rate of return in excess of the average rate of return for similar business in that industry. Goodwill is result of customer relation, ex. A company successfully selling a particular product at higher price than another company with similar product due to customer satisfaction, location advantages, management and employee relations, etc. A company enjoying these benefits is not necessarily reporting it on a financial statement. One company buying another company will inherently purchase any of its “goodwill” and will be expecting to pay for it in the purchase price. The amortization of this purchased “goodwill” is amortized over the period in…show more content…
These initiatives eliminated a number of differences between IFRS and US GAAP in accounting for business combinations before 2004 and aimed to assure increased comparability of financial statements and improve transparency of accounting and reporting of business combinations and intangible assets to include goodwill. A more recent article from the Financial Accounting Standards Board (FASB), from their own website,(FASB.org) dated January 16, 2014 and released from Norwalk, Connecticut stated updates to the US GAAP that provide alternatives for private companies on the accounting for goodwill. FASB Accounting Standards Update No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill, permits a private company to subsequently amortize goodwill on a straight-line basis over a period of ten years, or less if the company demonstrates that another useful life is more appropriate. It also permits a private company to apply a simplified impairment model to goodwill. Goodwill is the residual asset recognized in a business combination after recognizing all other identifiable assets acquired and liabilities assumed. (FASB, News Release Archive, Jan. 16, 2014).The update allows for goodwill to be tested for impairment when a triggering event
Open Document