Company Accounting Essay

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Case Study 2: Accounting for goodwill SILVER LTD Silver Ltd has acquired a major manufacturing division from Fern Ltd. The accountant, Ms Ball, has shown the board of directors of Silver Ltd the financial information regarding the acquisition. Ms Ball calculated a residual amount of $45,000 to be reported as goodwill in the accounts. The directors are not sure whether they want to record goodwill on Silver Ltd’s statement of financial position. Some directors even query whether goodwill is an asset, with some being concerned with future effects on the statement of profit and loss and other comprehensive income. Required: Prepare a report for Ms Ball to present to the directors to help them understand the nature of goodwill and how to account for it. Nature of goodwill 商誉的性质 * Is it an asset? If consideration paid > FVINA, excess = goodwill recognised as an asset, an unidentifiable asset, considered to be a residual interest measured at its ‘cost’ at the date of acquisition not individually identified or separately recognised * 2 types: Internal vs external/acquired goodwill * Nature of internal goodwill: undervalued/unrecorded assets, core goodwill (i) It is internally generated, (ii) No cost can be placed on it, (iii) Value of goodwill is based on the subjective judgement of the valuer, (iv) It is not reflected by a purchase consideration, and (v) It is not shown in the Balance Sheet. * Nature of acquired goodwill? Core goodwill: going concern & combination goodwill (i) It arises only on purchase of business (ii) It is reflected by a purchase transaction (iii) Us cost could, depend upon the future maintainable profits (iv) It can be shown in the Balance Sheet. * Why did acquirer pay for goodwill? Synergy增效 – extra benefits Goodwill is likely to represent assets that do not meet the
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