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The Concept of Amortization of Goodwill

   

Added on  2020-05-16

10 Pages1483 Words124 Views
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Running head: ACCOUNTINGAccountingName of the Student:Name of the University:Authors Note:
The Concept of Amortization of Goodwill_1

ACCOUNTING1Table of ContentsAnswer to Question 1......................................................................................................................2Answer to Question 2......................................................................................................................3Answer to Question 3......................................................................................................................5Answer to Question 4......................................................................................................................6Reference.........................................................................................................................................9
The Concept of Amortization of Goodwill_2

ACCOUNTING2Answer to Question 1The Amortization of goodwill is the old concept though still valid where an organizationneeds to analyse the useful life of goodwill to amortize the value of goodwill on a straight-linebasis over such useful life of the asset. Firstly, it is important to state that the amount of effortsneeded and required to assess the useful life of goodwill of an entity is very difficult task if notfeasibly impossible. Feasibly impossible because it is not possible to calculate the useful life ofgoodwill absolutely correctly. There after by using straight line method to amortize the value ofthe goodwill over the useful life of the asset does not provide any significant financialinformation in the financial statements to the users of the financial statements (Kabir et al. 2017).Thus, the whole process of valuation of goodwill and then to assess the useful life of the assetdoes not provide any important information to the users of the financial statements as the processafter that is very much redundant. The International Accounting Standards Board (IASB) hasrecommended that it is no longer required for the entities to do the impossible task ofascertaining the useful life of the goodwill to amortize the value of goodwill over the useful lifeof the assets. International Financial Reporting Standard IFRS 3 have clearly provided that theearlier requirement of amortization of goodwill over the useful life of the asset is no longercompulsory. The amortization of goodwill over the useful life of the asset will not yield anybenefit to the users of the financial statements as periodical amortization of same amount onstraight line basis is of no relevance as it is redundant process. On the other hand, the impairment testing which is generally conducted on the non-current assets of companies is scientifically sound method to ascertain the expected realizablevalue or value in use of non-current assets (Boennen and Glaum 2014). The reason is that the
The Concept of Amortization of Goodwill_3

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