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Why we show goodwill in balance sheet ?

Rohit (CA-Final) (1485 Points)

10 September 2012

As Per Para 19 of AS 14 Goodwill is Some Future Expected benefits ..... This is against Concept of Conservatism ??

Then why we show Goodwill in B/S ?

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6 Replies

CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 10 September 2012

Goodwill normally arises in the business combination i.e only when the purchase consideration (payable in cash or otherwise)is more than the fair value of the identifiable assets and liabilites.

Goodwill in business combination basically represents the synergies of benefits which acquirer will obtain from the business of the acquiree. In absence of these synergies such goodwill needs to impaired immediately. Thus, goodwill is recognised as it paid in cash or otherwise by the acquirer.There is no way to link this with the principle of conservatism.

Accordingly, accounting standard doesnt allow recognition of self generated goodwill.

Hope the above explanation clears your doubt.

Thanks

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Rohit (CA-Final) (1485 Points)
Replied 11 September 2012

Can you please Explain me the Meaning of this line " In absence of these synergies such goodwill needs to impaired immediately"

And Thankx for such a nice answer!!

ramcharan (articled assistent) (367 Points)
Replied 11 September 2012

As Sachin said no self generated goodwill can appear in balance sheet,only purchased goodwill can appear in balance sheet, if we dont show good will then also it will not create a problem as to matching concept it will be having impact on disclosure concept

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CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 15 September 2012

"In absence of these synergies such a goodwill needs to be impaired immediately" -

Normally in a business combination, the valuation of the acquiree is done based on certain assumptions about the future. These assumptions sometimes may not turn out to be true as we go forward in business. Accordingly the syngeries expected from the business combinations may not materialise in future.

In these circumstances goodwill paid and recognised at the time of business combination must be impaired immediately.

Hope it will be clear to u.

Thanks

acquirer will obtain from the business of the acquiree. In absence of these synergies such goodwill needs to impaired immediately.

Read more at: /forum/why-we-show-goodwill-in-balance-sheet--219706.asp#.UFSgjq6tH1W

In absence of these synergies such goodwill needs to impaired immediately

Read more at: /forum/why-we-show-goodwill-in-balance-sheet--219706.asp#.UFSgWq6tH1U

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Rohit (CA-Final) (1485 Points)
Replied 16 September 2012

Ok last quetion , Can a Company create Goodwill using Advetisments ??

and What are Basis to write off Goodwill ??

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CA Sachin Rastogi (Audit/IFRS Manager) (338 Points)
Replied 17 September 2012

Well self generated goodwill is not permitted by accounting standards. Please check the indian accounting standard or International accounting standard 26 for indicators (external indicators and internal indicators) of impairment.

Thanks

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