WHAT IS GOODWILL?
The main method used by businesses to classify assets is to split them into tangible assets, which have a separate existence from the business (examples of which would include buildings, land and machinery), and intangibles which do not. Some clear examples of intangibles include goodwill, patents, research and development expenditure and trademarks. Intangible assets are usually created within the organisation over a period of time, by the company itself, rather than acquired from an external source and are rarely sold off individually they can normally only be sold in conjunction with associated tangible assets.
Robins, in his essay "FRS 10: Goodwill and Intangible Assets" identifies three sources of goodwill
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It was not allowable to carry goodwill at cost indefinitely.
By immediately writing off purchased goodwill the company makes the treatment of goodwill equitable throughout the company. As inherent goodwill is not shown as a direct asset in the usual balance sheet it seems contradictory and inconsistent to record purchased goodwill. In addition, as it is not possible to realise goodwill independently of the company and it cannot be attributed a capital worth in a liquidation it seems unrealistic to record goodwill as an asset in the balance sheet. This would also suggest that amortisation of the intangible asset over any period should not be deferred and attributed to any future income.
However, in practise the immediate write-off to reserves is not altogether straightforward. As the goodwill has already been allocated an economic value for the purposes of the company sale it is difficult to argue that purchased goodwill is not an asset. The immediate writing off the amount to reserves ignores the existence of purchased goodwill. As outlined by Robins, it is also "inconsistent to charge expenses incurred for building up inherent goodwill to the profit and loss account and to write off purchased goodwill against the reserves" By amortising the intangible fixed asset through the profit and loss account either over its "economic useful life" or over a specific number of years, the goodwill can
vi) Goodwill- The beginning balance for Goodwill was determined by finding the difference between Total Assets and Total Liabilities at the beginning . Goodwill accounts for all the intangible assets that were transferred from the old company to the new company, including brand name, as well as a premium paid for the company. Goodwill was not amortized in this model.
Since 2001, amortization would not permitted for goodwill assets. Instead write-down of goodwill entity with continuous losses must be done.
Increases or decreases in the value of assets owned by the corporation, including tangible assets such as land and buildings, and intangible assets such as goodwill.
10. Complete the following table to show how Six Flags’ 2008 balance sheet would change if it fully impaired its goodwill. Ignore income tax effects. Classify “Redeemable Minority Interest” and “Mandatorily Redeemable Preferred Stock” as liabilities.
Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Assets include physical property, such as plants, trucks, equipment and inventory. It also includes things that can’t be touched but nevertheless exist and have value, such as
Assets are to be recorded and valued based of the type of asset there are.
ii. What percentage of the total (gross) assets acquired in the NDS acquisition (excluding liabilities assumed) are comprised of goodwill and other intangibles?
Like other industries, Goodwill is extremely vital for a company, company in this industry mainly rely on patent and goodwill. In my opinion, goodwill is one of the most important assets for YUM! Brands Inc. Because to frequent customers, their constantly support make goodwill accumulated, and on the other hand for new customers, goodwill gives them confidence to trust YUM. Well and stable goodwill can inform customers a lot of information. Total net goodwill for 2014 is $700(in million). And YUM! Brands Inc. recorded goodwill of $75 million and $11 million for KFC and Pizza Hut divisions, this part related to amount of 65 Kentucky Fried Chicken and 41 Pizza Hut in Turkey. The net also includes foreign currency translation’s impact on balances. In 2014 YUM! Brands Inc. recorded impairment charges of $222, and it is only $160 in 2013 (in million).
A company’s resources include two types: tangible and intangible. The former is asset that can be observed and counted, such as, office furniture, production equipment, computer, and warehouse, etc. Unlikely, the intangible resources are assets that are rooted deeply in the company’s history, accumulate over time, and are relatively difficult for competitors to learn and copy, such as brand, intellectual property and reputation, etc.
There are two types of intangible assets, those that have been purchased by organizations and secondly
Goodwill is an intangible asset recorded on the balance sheet when one business acquires another business and when the purchase price, or carrying value, is greater than the fair market value. It includes the reputation, brand, geographic location, patents, employee commitments, and etc of the acquired company. Goodwill is calculated by deducting the carrying value from the fair market value of identifiable assets and liabilities. According to the FASB Accounting Standards Codification (ASB), which is the authoritative source for GAAP, if fair value is less than the carrying value, net identifiable assets, then there may be a potential impairment loss. (FASB ASC 350, 2013). Net identifiable assets typically include a summation of
Purchase differentials need to be amortized over their useful life; however, new accounting guidance states that goodwill is not amortized or reduced until it is permanently impaired, or the underlying asset is sold.
Amortisation of goodwill over a period not exceeding 20 years (also permitting to charge goodwill to equity at the acquisition date)
Furthermore, if an organisation does not have enough cash resources in order to settle its current liabilities, this will highlight great inefficiency with stock turnover not being sold. A good company such as Sainsbury’s we see is healthy because revenue is recognised from inventories sold – this revenue allows cash to flow in order to pay for short term and long-term liabilities. It is evident that there are insufficient cash flowing into the company from investing activities and financing activities, which are shown by the brackets.
Assets can be hard goods such as computers and equipment, but can also be information and intellectual property.