Valuation of Goodwill

1346 Words Feb 23rd, 2013 6 Pages
Goodwill is an intangible element connected with the going concern which include personality, reputation, the company name, convenient and favourable location of the business, quality of merchandise, efficient management, supply and demand for a choice product, affordable prices, efficient labour relations with employees, true and fair view and finally courteous methods of treating customers.
Goodwill is often shown on the accounting books and records and therefore on the balance sheet only when it has been purchased. In the concluded analysis, the real test of existence of goodwill is the ability to earn a rate of return which is higher than it is usually realized in the
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Nobes (1989) argued that it should be capitalized and amortized over a number of years while Stacey and Tweedie (1989) believed that it is better to leave goodwill on the balance sheet unless there is a permanent diminution in value.
Finally, there are some who argue that goodwill should be written off against reserves once its value is uncertain and can not be dispose of separately from the business. These different and conflicting points of view have led to an unsatisfactory standard which different companies use in assessing goodwill as an asset on the balance sheet when giving the company’s annual reports.
From the hypothesis carried out, it was discovered that where a goodwill is being amortized, the movement on the goodwill account in the year shows the cost accumulated amortization and the net book value at the beginning of the year and at the end of that same year and the amount of goodwill amortized through the profit and loss account during the year and the period chosen for amortising the goodwill asset relating to each major acquisition.
The true and fair value of the consideration and the amount of purchased goodwill arising on each acquisition during the period should be separately stated. The process of dealing with merger reserve or another reserve or maybe it has been carried forward as any fixed intangible asset

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