Case Study on West Ltd.

Running head: CASE STUDY ON WEST LTD.
Case Study on West Ltd.
Name of Student
Name of University
Author’s Note

CASE STUDY ON WEST LTD.1
Table of Contents
Introduction................................................................................................................................2
Requirement for Goodwill.........................................................................................................2
Measurement of the Purchase of Goodwill................................................................................6
Analysis of the Case Study........................................................................................................7
Reference....................................................................................................................................9

CASE STUDY ON WEST LTD.2
Introduction
As per the case study, West Ltd. has a tag in the market as one of the company who
looks after the environment. The company’s effort of not catching the Dolphins while tuna
fishing. This effort fetches the company a tag of Dolphin friendly company (Bepari and
Mollik 2017). The effort which is made by the ship named Steve Irwin for stopping the
illegal activity of whaling will provide some good name for the company in the market. The
proposed plan, made by marketing managers of the company need to scrutinize by the board
as the plan contains some issues regarding the accounting treatment, which will affect this on
the financial declarations of the company.
Requirement for Goodwill
As per the standard made by the Australian Accounting Standard, AAS 18, goodwill
will apply for the following purpose. They are provided below:
 The standard for goodwill will be applied to each private sector companies and
organization irrespective of the company’s profit motive (Boučková 2016).
 The standard for goodwill will also applied to each public sector companies
and organization irrespective of the company’s profit motive.
The standard for goodwill falls under the Corporation Law of Australia. The standard
for goodwill present in the financial report of the company. This goodwill is known as
material whose information coming from the application present in the Australian
Accounting Standard AAS 5. AAS5 deals with the materiality of the accounting for the
company.
The very purpose of AAS 18 is to portray accounting system to be followed during
the calculation of the goodwill and discount on the acquisition of any company (Carvalho,

CASE STUDY ON WEST LTD.3
Rodrigues and Ferreira 2016). The goodwill requires to disclose the information relating to
the financial position of the company in the financial report of the company.
Goodwill purchased by any organization need to be treated as the non-current asset at
acquisition, which is expected in the case of the company who deals with investment. When
the goodwill purchased by any organization during the acquisition procedure, the company
need to exchange transactions that enable the value of goodwill, which needs to be measured
reliably. There are number of methods which exists for measuring the goodwill (Faelli 2016).
They are as follows:
1. Years’ Purchase of Average profit Method: In this method, the average profit of
multiple years is multiplied by one or more number of years in order to establish the
good’s value. The number of profits which need to be taken for calculation and the
number of years which need to be taken depends on the entity’s opinion. The average
profit which is multiplied by the number of years that in turn ascertain the goodwill
of the company is called Year’s purchase. This method is also known as Purchase of
Past Profit Method or Average Profit Basis Method.
2. Years’ Purchase of Weighted Average Method: This method is one of the
modified versions of Years’ Purchase of Average Profit Method. As per this method,
the profit of every year needs to multiply by the weights. Then the same rule of
years’ purchase of standard method is calculated.
3. Capitalisation Method: As per this method, the value of the full firm is being
determined based on a reasonable profit. The goodwill is calculated by differentiating
the net tangible assets from the value of the business. To analysing the goodwill, the
following steps need to be incorporated. Firstly, the Expected Average Net Profit
needs to be ascertained (Farima 2018). Secondly, the capitalised value of profit needs