Goodwill Accounting Case Study

If the 5-year amortization were applied in its place of the 40-year timetable, then it is necessary for Blockbuster to identify the goodwill in larger amounts. This would increase tax liability of Blockbuster, which would have represented a loss of $0.09 (0.58 - 0.49) per share

Goodwill is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.For the purposes of impairment testing, goodwill is allocated to each of the Group 's cash-generating units (CGUs), or groups of CGUs, expected to benefit from the synergies of the business combination. CGUs (or groups of CGUs) to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired.If the recoverable amount of the CGU (or groups of CGUs) is less than the carrying amount of the CGU (or groups of CGUs), the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU (or groups

When analysts question a firm’s earnings quality, it raises concerns regarding under or over aggressive accounting practices that may be allowing the firm to manipulate the earnings. Earnings quality is defined as the strength of the current earnings in being used to predict future earnings and cash flows. Since earning quality is indicative of future performance, analysts are more likely to address issues that have substantial impact on the earnings quality. An issue arises when the nature of the earnings is questioned. While permanent earnings are part of normal operations, any irregular, one time earnings can skew the earnings, making the firm look more profitable than it is. This is due to the inability to recreate similar one-time transactions that will give rise to such numbers. Investors prefer predictable

Since 2001, amortization would not permitted for goodwill assets. Instead write-down of goodwill entity with continuous losses must be done.

4. The accounting for income taxes will have to be revised. Pam suggests that the first entry be reversed and a new one be set up. Pam also was informed by Linda Durkee that purchased goodwill could be amortized over 15 years and was deductible for income tax purposes. Consequently, Hydromaint has elected to amortize goodwill over 15 years.

(1) Performed a key word search using goodwill, amortized. I scrolled down to section 35 subsequent measurement of topic 350 Intangibles- Goodwill and other.

The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that

Depreciation and depletion are two models of computing financial reports. These techniques are used as adjustments when preparing statements of cash flow within the direct or indirect method. This paper will identify and examine the methods of depreciation and depletion, describe the difference between the methods, and compare and contrast depreciation and depletion as well using scholarly references to support the points.

Goodwill is an intangible asset for which the accounting methods are pronounced by FASB issued _SFAS No. 142_, "Goodwill and Other Intangible Assets." Goodwill is an earning power concept in which its value is an approximation equal to the discounted present value of future earnings that would exceed normal industry earnings. Goodwill is recognized as an intangible asset when it is acquired through a purchase of an existing company. Its value is determined by the excess of the total fair value above the fair value of distinguishable net assets. Amortization of goodwill is

Goodwill is evaluated for impairment at least annually. They are evaluated more frequently if circumstances indicate that the asset might be impaired. The

Goodwill impairment refers to the adjustment of the goodwill value, with respect to the value at the time it is original’s recognition. Goodwill impairment usually occurs when the carrying value of the goodwill exceeds its fair market value. What it comes down to is that goodwill impairment usually occurs as a consequence of a decreased brand value, or negative market information about a company or the need to adjust value of overpaid assets that were acquired in the past (www.fool.com).

However, the tax basis of other amortizable, which was acquired in the same transaction, would be adjusted; that means the bases of the other intangible must be increased from the basis of the disposed intangible amount. Although, a taxpayer shall not recognize an immediate loss of the entire amount of the worthless intangible, the impairment of the intangible would be recognized over its remaining amortizable lives by increasing the bases of the other associated amortizable intangible. Continuing with the previous example, assuming that on December 31, 2007, Sara deemed goodwill to have a zero value. Consequently, Sara should increase the basis of going concern value by $24000, resulting in an adjusted basis of $60,000. Thus, the worthless goodwill amount continues to be amortized without any change to either the amount of amortization or the period of amortization. The only change that the amortization would be under the guise of another related intangible. On the other hand, if the worthless intangible were the only amortizable section 197 intangible acquired in the transaction, it could be written off, since there would be no basis to adjust of another existent amortizable section 197 intangible from that same purchase

Information based on accrual accounting has historically and empirically provided a better indication of a company’s ability to generate cash flows than information gathered under the cash method. If there is not inter-period allocation, then the information is not as meaningful and will result in a mismatching of economic benefits

Nowadays, as our economy is facing possible everyday crises, managers undergo an increasing pressure in order to keep their company 's earnings stable. Shareholders and analysts expect companies to meet forecasted goals and not to deviate from these. Especially, reliable companies are to report positive results and shall not present any 'surprises '. Managers therefore often turn to their accounting departments for help, whose job it then is to improve the bottom line by changing the information shown in financial

Identifiable intangible assets with finite lives are carried at cost less accumulated amortization and adjusted for