The Valuation And Impairment Of Goodwill

1487 Words6 Pages
This paper aims to clarify the Financial Accounting Standards Board (FASB) accounting standards regarding the valuation and impairment of goodwill; therefore, the primary source used is the FASB website. The focus of this paper will be on the valuation of goodwill in business combinations and the impairment of goodwill. This paper will not discuss the valuation of goodwill in an acquisition by a not-for-profit entity. The paper will first define key terms required for understanding FASB standards of the valuation and impairment of goodwill. The paper will continue on to outline International Generally Accepted Accounting Principles (IGAAP) regarding the valuation and impairment of goodwill. This paper will illustrate the history of the…show more content…
Goodwill is a type of intangible asset which is measured when an entire company is purchased (TEXT pg658). “Conceptually, goodwill represents the future economic benefits arising from the other assets acquired in a business combination that are not individually identified and separately recognized” (TEXT pg659). Goodwill is not measured internally because the valuation is difficult and near to impossible to pair with the costs of creating it (TEXT pg659). Consideration Transferred - Consideration transferred is the amount paid by the acquirer to the previous owners to purchase the business. It is measured at acquisition date fair value and is the sum of assets transferred by acquirer, liabilities incurred by acquirer, and equity interests issued by the acquirer (FASB 805-30-30-7). If the sum includes carrying amounts that differ from the fair value then these assets and liabilities should be re-measured at fair value and gains or losses should be recognized (FASB 805-30-30-8). Assets and liabilities that are held both before and after the business combination should not recognize a gain or loss; they should be measured at their carrying amounts directly before the acquisition date (FASB 805-30-30-8). Contingent Consideration - A contingent consideration is usually an obligation of the acquirer to transfer additional assets or equity to previous owners if specific conditions are met (FASB 805-30-20). This type of
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