The Nature of Goodwill

Historical cost accounts do not measure the loss of value of monetary assets as a result of inflation. So in case of high inflation, the assets could be mispricing and provoke disturbances in the analysts. The validity of historical-cost accounting is based on the assumption that the currency in which transactions are recorded remains stable, that is to say its purchasing power remains the same over a period of time.

Managerial accounting is essential for decision making. Making the best choice depends on the manager's goals, the anticipated results from each alternative, and the information available when the decision is made (Schneider, 2012). The different techniques associated with managerial accounting are very helpful in the decisions that need to be made. In order to truly understand decision making with managerial accounting one must first discern exactly what managerial accounting means and some of the techniques associated with it. The definition of managerial accounting will be discussed along with the techniques of cost management techniques, budgeting, and quality control.

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

Kess, M. (1995). Cost accounting and cost analysis at the united states mint. The Government Accountants Journal, 44(2), 56. Retrieved from http://prx-herzing.lirn.net/login?url=http://search.proquest.com.prx-herzing.lirn.net/docview/222366904?accountid=167104

A1. Concerns in Budget Planning: Budgetary Items. Depreciation: Depreciation is “the method that the accountants use to allocate the cost of equipment and other assets to the total cost of products and services as shown on the income statement” (Berman, Knight, & Case, 2013). Depreciation is said to be based on the same fundamentals as accruals in that a company “wants to match as closely as possible the costs of products and services with what was sold” (Berman et al., 2013). The idea is to spread the cost of the expenditure over the useful life of the item over the course of time (Berman et al., 2013). Depreciation carries too much of an increase in year 9. Year 8 totals for accumulated depreciation is at

Over the past several years, there has been a growing controversy over the accounting issues of fair values and historical cost. The basis of this controversy revolves around which one of these principles is the most accurate. There are many different viewpoints on this issue. Many accounting professionals believe that fair value is just as accurate as the historical cost principle, while others believe that the historical cost is more reliable. The facts about each of these valuation methods will be researched and explained throughout this research document, as well as the different viewpoint about which method is the most accurate and reliable.

Goodwill is a premium that the acquiring company pays above the fair value of all net assets of the acquired company, which represents an extra value attributed to brand and reputation of the acquired company. Accounting treatment for goodwill has evolved significantly as goodwill becomes an increasingly important economic resource for many companies.

Historical record: One of the early objectives of historical cost accounting was stewardship. This meant that financial reports were a report on how well management had safeguarded the

Historical cost is the most common adopted measurement basis in the IASB; FASB suggests that market selling price (Fair Value) is more accurate description of how much assets and liabilities are currently reflected in financial reporting (SFAC 5, 2008). In other words, it was about the historical cost versus fair value. Historical cost gives priority to existing shareholders and regard stewardship as an important function of financial reporting (Whittington, 2008). Historical cost records actual transaction with supporting documents so the financial report is less subject to manipulation by management (Shortridge et al., 2006). The information is relevant to forecasting future cash flows within entity specific perspective rather than direct valuation of future cash flows. Historical cost accounting may lack relevance as during period of inflation (Pozen, 2009). The fact that relevant information has predictive value strengthens its decision making power over reliability principle (KAYA,

Appropriately tracing costs is extremely important when creating segmented income statements. Traceable costs are those costs that are directly incurred by and traceable to a specific segment of an organization (Brewer, 2015). This figure is then used when computing the segment margin, which indicates the long-run profitability of that business segment (Brewer, 2015). If costs are traced inaccurately, the profitability of a business segment may be over or under valued which may lead managers to make potentially unfortunate business decisions regarding that segment. For example, if the fixed costs of segment A are inaccurately traced to segment B, segment B may look as though it requires more money to break-even. Based on this inaccurate information,

40 would require Silic to mark its investment properties to fair value during each reporting period, and report the gains and losses on its income statement. As indicated in the case, French real estate market had experienced substantial upward and downward movements in the value of properties. Thus, a probable outcome of fair value accounting would be a significant fluctuation in the firm’s bottom line during each reporting period. Fluctuations in net income signals great risk of the financial performance of an entity. A normal risk averse investors would not invest in an company that poses significant risk. Therefore, I believe historical cost accounting would present Silic in the most favorable light over

Compare with revaluation method, history cost method will decline the comparability of the market. As we all know, from the 21 century, network, communication, and transportation were enhanced very quickly, so globalization of markets has a huge scale and international trade is highly common for all the country. Therefore accounting is more important for a cooperative or competitive partner. Meeks and Swann (2009) believe that the various accounting report will hinder the progress of international trade. When the company will use history cost to record the fixed assets, the initial value and regular deprecation are written in the financial statement. Accounting to Ying and Kan (1996), due to the development of technology, scarcity of labor and price changes, the historical cost method cannot reflect the real assets. However, the revalued method is used fair value which can show the real price of assets, and Lihong, Yun, Yunying (2010) state that if the fair value used in the accounting, the profit will more approach the profit of economy. What is more, as reported by Ionascu (2012); Mane (2013) that uses fair value in revaluation method is unreliability and it violates the principle of prudence. Thus revaluation method can exhibition the fair value of property, plant, and equipment.

An explanation of the accounting and business techniques that have been used, including a discussion of their limitations

Cost volume profit (CVP) analysis and costing for the 21st century has evolved into a very complex and difficult paradigm. Even the most gifted accountants find that grasping the entire concept of accounting for a corporation can be very mind-boggling and difficult. Yet, understanding such a fundamental principle can allow corporations to grow in ways that other, less educated, corporations can never dream to achieve and simultaneously understand the ‘bottom-line’. In this paper we will discuss value costing in the 21st century, other relevant costing methods, and the relevancy of CVP in today’s workplace.

(BESSONG, 2012) Study the importance of historical value and fair value cost accounting on reported profit. The study discussed how fair value accounting and historical cost accounting will have effect on the reported profit. However it is said that key objective of any business is to earn profit and it is also equally important to report the profit. Especially it is more important to record profit carefully during inflationary period. However they have study the reported profit and effects of fair and historical value by collecting data from both primary and secondary source. Therefore it is found that historical and fair value both is equally important and both have significant effect on the reported profit. Therefore operating profit of the company is influenced by the amount that is paid for taxes, dividend and depreciation.