Financial Reporting and Disclosure: Goodwill, IAS 12, and Accounting

This report delves into the intricacies of financial reporting and disclosure, examining the recognition and subsequent write-off of goodwill, its implications, and the circumstances under which it occurs. It explores the connection between significant goodwill write-offs and potentially flawed investment strategies, using eBay's acquisition of Skype as a case study. The report also outlines the requirements of IAS 12 concerning deferred tax assets, contrasting them with tax losses. Furthermore, it discusses deferred tax assets arising from employee benefits liabilities and the accounting standards governing financial statement disclosures. The analysis covers goodwill, impairment, business combinations, and the application of accounting principles to provide a comprehensive understanding of the subject matter.

Running head: FINANCIAL REPORTING AND DISCLOSURE
Financial Reporting and Disclosure
Name of the Student
Name of the University
Author’s Note

1FINANCIAL REPORTING AND DISCLOSURE
Table of Contents
Answer to question 1.......................................................................................................................2
Part 1............................................................................................................................................2
Explaining the circumstances under which goodwill are recognised and subsequent write off
occurs...........................................................................................................................................2
Part 2............................................................................................................................................5
Explaining a significant goodwill to write off and signal a ‘flawed investment strategy’..........5
Answer to question 2.......................................................................................................................7
Proposal accounted for accounting standards..............................................................................8
Disclosure of financial statement based on accounting standard..............................................10
Answer to question 3.....................................................................................................................14
Part 1..........................................................................................................................................14
Outlining the requirement of IAS 12 and these requirement differ from deferred tax assets
from tax loss..............................................................................................................................14
Part 2..........................................................................................................................................16
Discussing deferred tax assets from employee benefits liabilities that has been recognised....16
Tax loss recognised as deferred tax assets.................................................................................16
References......................................................................................................................................18

2FINANCIAL REPORTING AND DISCLOSURE
Answer to question 1
Part 1
Explaining the circumstances under which goodwill are recognised and subsequent write
off occurs
Goodwill is a type of intangible assets that cannot be seen or touched and in terms of
accounting, it is the type of assets which only gets transferred from one company to another
company. At the time of acquiring one company by another company, the concept of goodwill
comes significantly at the time of fair market value that are higher than the net assets of the
company (Šapkauskienė & Leitonienė, 2014). It consist of elements that makes up the intangible
assets for which it comprises the reputation of the company that are directly based on clients or
the customers. The identity of the brand is also highlighted by the assistance of goodwill which
is directly associated with workforce that are talented in nature along with proprietary
technology. It is totally based on the valuation of the assets that are available within the company
along with other income that are deemed to be assets in the company. Under the position of
Globally Accepted Accounting Principles and IFRS standards, this particular intangible assets
has an indefinite life which can only be transferred from one company to another company
(Jarva, 2014). Goodwill needs not to be amortised as it helps the company to increase their total
amount of revenue and sales that are performed by the firm.
The goodwill are required to be evaluated for the impairment purpose only that might be
chosen by the companies for amortizing the goodwill over the period of a decade or a period of
ten years. Goodwill is shown in the assets site of the balance sheet under the head of intangible
assets (Knauer & Wöhrmann, 2016). In addition to this, accounting goodwill is totally different

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from economic goodwill that are required to be categorized at the time of purchasing another
company. The referring to the intangible assets which includes the intangible assets that are
already included in the financial statement of the company. The entry for the goodwill appears in
the listing of the assets of the firm that mainly highlights the balance sheet of the firm after
pointing out the recognition of the assets that comes into existence (Avallone & Quagli, 2015).
The goodwill that is economic within an intangible assets requires certain brand equity along
with superior customer’s relation. It assist in proving the competitive advantage to the company
that are struggling in the targeted market along with considering it both marketplace as well as in
financial statement of the business.
The existence of the intangible assets includes the indication or the estimation for the
value which are going to be used for measuring the return of the company along with returning
of the asset ratio. The net tangible assets is exceptionally high that interference with the
profitable income of the company that puts into existence of substantial intangible assets of the
goodwill of the company (Li & Sloan, 2017). The contributable intangible assets is borne out to
be in fact that are required to be recognised for providing the significant edge in the competitors
by the favourable design along with the reputation of the company by considering the relation
with customers service that are basically outstanding in nature. There are certain circumstances
on which the goodwill are recognised for overvaluation of firms for acquiring new business
(Wen & Moehrle, 2016). The figure that has been mentioned in the question mainly shows the
returns of cumulative stocks of eBay. The cumulative stock of eBay is mainly against the S & P
500 from the year 2003. It has been mentioned that the company has acquired the internet phone
company known as Skype for around $ 2.6 million.

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The main cause for this particular behaviour is the amount of incentives that is earned by
the manager that has been overvalued by the firms for acquiring of the business. The exploitation
in the process of overpricing for the appointed shareholders includes the benefits for justifying
the total amount of intangible assets that is present in the company (Abuaddous, Hanefah &
Laili, 2014). The prolonged overpricing of the shares is required to be maintained for the growth
that would be utilised in the firm. The goodwill that are required to be maintained as it includes
the importance of the business that flows in the investment strategy of the business. The amount
of goodwill is required to be written off by signifying the returns of the stock that are cumulative
in nature. Certain journal entries are required to be passed in which the asset account and
goodwill account is required to be debited and liabilities account and cash account is required to
be debited (Caruso, Ferrari & Pisano, 2016). The fair value of the goodwill generally differs
from the books value of the goodwill as the fair value of the accounts receivable is lower than the
overall amount of book value for the accounts that are uncountable in nature.
The fair value of the inventory is mainly lower than the book value for which is due to
the obsolesce of the assets in the company. As per the viewpoint of Sherrill (2016), the fair value
of PPE would be higher than the book value for the depreciation that would be declined with the
overall amount of fair value. The financial modelling for the mergers and the acquisition that
mainly accurately reflects the overall value of goodwill that are required to be accurate. The
book value of the assets is included in the balance sheet of the company that are directly
associated with the fair value of the assets (André, Filip & Paugam, 2016). The accounting
treatment for the goodwill with the introduction of the standard that is IFRS 3 business
combination which follows the post implementation process along with reviewing the converge
IFRS 3. The International Accounting Standard Board have the projects that would be included

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with goodwill and intangible assets that are mainly recognised in the business combination in a
certain fiscal year (Jordan & Clark, 2015). The focusing on the goodwill includes the effective
management of the intangible assets that are required to be initiated with the combination of the
business.
Part 2
Explaining a significant goodwill to write off and signal a ‘flawed investment strategy’
The goodwill is required to be write off that is associated with the recorded with the
company that is purchased with another company in a particular accounting year. As mentioned
by Majid (2015), the fair value of the identified intangible assets has been assumed that are
required to be amortized by the recorded amount in the goodwill. IASNB stands in the unveiled
position that takes forward and records the progress that is cost effective in nature. The
consideration of the goodwill recognises separately that includes reliable measurement of the
internally generally intangible assets (Cheng, Peterson & Sherrill, 2017). The reliable
measurement is difficult in creating the paradoxical problem that would be consistent with IAS
38, intangible assets that would be inconsistent in the overall procedure of accounting for the
intangible assets that are identifiable in nature. The changes in the IASB is making a strong
arguments that makes certain changes in the IFRS 3 in respect to the assets that are intangible in
nature. The requirements of the intangible assets in the business combination is required to be
amended for the acknowledgement of recognising the goodwill (Chen, Krishnan & Sami, 2014).
The subsequent accounting for the goodwill reflects the consumption of the resources that are
acquired over the specific period of time.

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Mixing the amortization and impairment of the goodwill appears most of the current
impairment of the goodwill which includes the effective model for writing off the goodwill. The
circumstances that relates to the goodwill of the allocated cash generating units are highly
vulnerable in the going concern that might be recoverable in nature (Saastamoinen & Pajunen,
2016). The allocated amount of goodwill is excess in the effectively shield along with
impairment of goodwill that includes the incorporation of the PH of goodwill in order to measure
the date of acquisition along with impairment of the sheltered effect of the available in tangible
assets. IASB has come up with certain interesting thoughts that helps in betterment and
clarifying the doubts in the impairment of goodwill along with improving the overall procedure
of accounting in the overall process of impairment of goodwill (Bepari & Mollik, 2017).
Goodwill is recognised in the result of business combination that mainly points out the difference
between the amounts of total purchase consideration along with total fair value of the assets that
are acquired in nature. The assets that are acquired includes the liabilities that are assumed along
with the assets that are intangible in nature.
It is measured that if the amount of goodwill is negative in nature then the total amount of
fair value of the assets that are acquired in nature is required to be more than the total amount of
purchase consideration (Hassine & Jilani, 2017). The excess amount of money that is mainly
generated in the overall process is immediately recognised as total amount of profit that would
be earned in the overall process of impairment of assets. The measurement that is measured
includes the value of assets that are intangible assets at the amount of cost that would be
increased with value that would be carried in the revaluation process of surplus account. The
indefinite life of each assets is deemed to have a certain life that includes the cost which is
required to be amortised at the rate of certain percentage that is available with the company

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(Darrough, Guler & Wang, 2014). The process of impairment of goodwill that is tangible in
nature indicates any kind of impairment or test that is required for the company. The amount that
is generally recovered is mainly higher than the cost that would be sold in the targeted market
along with using the cash flow that is discounted in nature of the available assets (Brown, Preiato
& Tarca, 2014). The recoverable amount of money is generally lower than the carrying value
that would be reduced in upcoming years and it would be charged with the profits.
At the time of recoverable amount that is found lower with including the charges to the
profits along with possible in an impairment of loss that are directly related to the intangible
assets along with for the goodwill. Based on the viewpoint of Wang (2014), the remaining
difference between the IAS and GAAP includes very limited amount of gap that are generated
internally along with internally generating the recognised of the capital accounts. The significant
on the companies of the research material are required to be introduced with the development of
the expenditure that are associated with the stock market (Chen, Ding & Xu, 2014). The
impairment of assets may write off in the signals that includes flawed investment strategy along
with significant changes in the investment strategy of eBay.
Answer to question 2
The chairman of West limited has been responsible in the overall operation of business
that is mainly focused on the selling of and process of fish that is ultimately sold to the
customers. The company mainly deals with frozen products and canned fish and the company is
considered as one of the leaders in the targeted market (Yu & Wahid, 2014). The fish that are
caught in southern Australian waters are generally sold under a different brand name as
‘Antarctic Fresh’ that is branded by the company along with its development and operation in the
business operation. It also includes the fish that are caught in the northern oceans are sold under

8FINANCIAL REPORTING AND DISCLOSURE
the brand name of ‘Tropical Taste’ which is mainly developed by another operating company
known as Fishy Tales limited. This particular consist of certain amount of assets and liabilities
that are mainly acquired by West limited that overtook several years ago. As the chairman of the
company is not aware of the overall process of accounting so the report has been prepared to
advise and proposal for the overall process of accounting in the company along with mentioning
the financial statement of the company (Albu, Albu & Alexander, 2014). It also includes the
accounting standard that mainly affects the financial statement of the company that is West
limited.
Proposal accounted for accounting standards
The measurement of cost and processing along with communication and financial
information about the business includes in the overall process of accounting. This is the process
that is associated with certain amount of cost that is mainly included during the overall business
process by West limited. The process of accounting in the accounting standards that are
identified as set of rules and regulation that are required to be followed at time of treatment of
accounting for better outcome from the overall process (De Simone, 2016). The set of rules and
regulation that would be followed at the time of making any kind of entry in the financial
statement by the company with the process of improving the transparency of the overall process
of financial reporting. These are the written documents with the policy that has been prepared by
the regulatory body in the overall aspects of recognition, measurement, treatment and disclosure
of transaction that are accounting in nature in the financial statement that are mainly prepared by
the managers of the company (Oulasvirta, 2014). The enterprises that are present in different
countries are generally labelled as level 1, level 2 and level 3 companies and based on this

9FINANCIAL REPORTING AND DISCLOSURE
particular categories the accounting standards are mainly applicable in the companies for
recording and reviewing the overall transactions.
There are different types of accounting standards that deals different aspects of
accounting which are required to be initiated with the implementation of the transactions. The
introduction of the accounting standards helps in standardising the overall practice of accounting
that mainly helps in comparing the financial statement that are prepared by the managers of the
company (Pacter, 2014). Different types of entities are falling in same type of industries in which
different types of accounting standards are mainly applicable. The overall process of
applicability of accounting standard mainly highlights the types of industries that are segment
into many levels. In case of corporate entities, the purpose of applicability in divided into
different small and medium companies that listed in the stock exchange of the country and
immediately precedes with the accounting year. Certain type of partial exemption are being
relaxed with different type of accounting standard (Minnis & Sutherland, 2017). The entities that
are non corporate in nature includes cooperative society along with charitable organisations that
would apply in the overall process of business activities. The accounting standards that includes
the effective management of the time along the conceptual framework in the process of financial
reporting.
The accompanying the documents are generally available in the financial statement of the
company that points out then transaction that has taken place in the overall fiscal year (Kraft,
2014). IFRS includes the conceptual framework that is directly associated with the applicable in
the particular accounting standard that would be useful for presenting the accounting treatment in
the accounting years by the company that is West limited. The fundamental concepts of financial
reporting includes the development of the standards of the accounting boards that would be

10FINANCIAL REPORTING AND DISCLOSURE
included in the ensuring the standards that are associated with similar types of transaction that
are taken place in the company (Kanapickienė & Grundienė, 2015). It also helps in providing
useful as well as valuable information to the shareholders, stakeholders, investors and lenders of
the company. The development of the accounting policies is accompanied with the IFRS
standards that includes the effective understanding as well as understanding the standards. The
conceptual consistent of the accounting standard develops the accounting policies that are
applied in certain accounting transaction which also helps the stakeholders of the company to
interpreting the particular accounting standards.
The financial reporting has the general perspective that includes the qualitative
characteristics by using the correct and useful information of the company. The reporting entity
along with its boundary defines the assets and liabilities that are present in the company over a
certain period of time (Berger, Minnis & Sutherland, 2017). The inclusion of the assets includes
the financial statement along with guiding the measurement of the bases and guiding the concept
of presenting the disclosure and concept of capital maintenance. The presentation of the financial
statement includes all the requirement along with the financial statement that are required to be
structured and overriding the concepts of going concern. The content of the concept includes the
effective requirement of the financial statement that are associated with the company in a
particular accounting year (Cao, Chychyla & Stewart, 2015). Therefore, accounting standard are
the set of policies and rules and regulation which are required to be followed during the overall
process of accounting practice in a selected organisation. These are the accounting that mainly
helps in preventing the mistakes or issues that are associated with recording of financial
statement on the transaction that would be beneficial for the company.

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Disclosure of financial statement based on accounting standard
The presentation of the financial statement includes the accounting standard that involves
the accounting information which are required to be included in the statement of finances. IAS 1
mainly deals with the presenting with the financial statement which mainly set out different
requirements of the financial statement that includes the structure (Wong & Joshi, 2015). The
treatment that is associated with the concept of accounting includes the some aspects such as
going concern of the business and accrual basis of accounting along with differentiating between
the financial and non financial transaction of the company. This particular accounting standard
has been reissued in the month of September in the year 2007 and it is generally effective from
the first of January of that particular financial year (Mullinova & Simonyants, 2016). The
objectives of the accounting standard that is IAS 1 which deals with presentation of financial
statement for ensuring the comparability of the entity along with measuring the period of years
and statement of other entities. The overall requirement of the standard provides the guideline of
the structures and considering the minimum requirements of the content (Liu et al., 2014). The
measurement and disclosing of certain transaction includes the other standards for presentation
and interpretation of the data that are financial in nature.
Financial statement of the company that is West limited consist of three main financial
statement that are profit and loss statement, balance sheet and statement of cash flow. These
statement are the main three statement which are required to be considered during performing
any kind of financial analysis of the company over certain fiscal year. The financial has been
discussed in the following part which are mentioned as follows.
Profit and loss statement – Profit and loss statement is also coined as income statement
which mainly shows the total amount of profit or loss that is earned by an organisation after a

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certain financial year. It is the type of financial report that provides summary of the total amount
of funds that are incurred for a certain task along with pointing out the ability of the company to
generate certain amount of sales and earns revenue from it (Capkun, Collins & Jeanjean, 2016).
This particular statement is based on the accounting principles that are directly associated with
recognition of revenue along with matching concepts and accrual basis that mainly affects the
cash flow statement and makes certain differences. In other words, the differences between the
revenues and expenses is the result for the profit or loss that has been determined with the
accounting standard. The income statement has different types of categories that includes the
revenue, cost of goods sold along with different types of expenses such as selling expenses,
administrative expenses and interest expenses and others.
Income tax is another type of expense that are required to be paid to the government with
the fiscal year. The main factors that makes the difference at the time of profit and loss statement
includes the revenue recognition principles which is mainly recognised at the time cash that is
being received with implementing accounting standard on it (Hanlon, Navissi & Soepriyanto,
2014). The matching principles also plays a vital role in the expenses that are being matched
during the period along with earning with effective implementation of the accounting standard.
The financial health of the company is also analysed by the help of income statement, if the
amount of expenses is more than total amount of income then the amount is denoted as financial
loss for the company and if the amount of income is more than the amount of expenses the
company has earned a certain amount of financial profit for the period of time.
Balance sheet – It is a type of financial statement that is prepared by the managers of the
company after a financial year which includes the assets and liabilities of the company that are
available in nature. It is the financial statement that points out the balances of the assets of the

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company as well as liabilities of the company and it is associated with financial modelling of the
firm. It also points out how the assets are financed and how the liabilities are balanced with the
available assets of the company. The main purpose of the balance sheet is the highlight the
financial position of the company in their targeted market which includes with the available
sources of finances by the firms (Widiatmoko & Mayangsari, 2016). This particular statement is
also known as statement of financial position. The fundamental equation of balance sheet is
mentioned as follows: Assets = Liabilities + Equity. Moreover, the liquidity of the firm is also
denoted by the balance sheet which includes the effective diluting the assets in the fir that would
provide financial support to the business in the normal operation. This statement is generally
prepared after completion of the financial year as several treatment is included in the statement.
Cash flow statement – Statement of cash flow is also a type of financial statement that
mainly points out the inflow of cash as well as outflow of cash from the company. This particular
statement act as a bridge between two of the above mentioned financial statement which are
profit and loss statement and statement of financial position and shows how the cash is flown out
from the company (Jackson, 2015). Three different section of the cash flow statement has been
mentioned as follows. The first activities is the operating activities that includes the principles of
generating the revenue of the company along with other activities of flow of cash from the
current assets and current liabilities that are present in the company. It is the first activities and
the second activity is the investing activity that mainly deals with the acquisition as well as
disposal of assets that are long term in nature and also includes the fixed assets and other type of
investment (Badenhorst & Ferreira, 2016). In addition to this, financing activities is the last
activities that is included in the statement of cash flow which mainly deals with the equity capital
of the firm that is contributed in nature along with entity of the books of accounts.

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Answer to question 3
Part 1
Outlining the requirement of IAS 12 and these requirement differ from deferred tax assets
from tax loss
IAS 12 is the accounting standard that deals with income taxes that includes the overall
process of comprehensive balance sheet that mainly recognises with the consequences with the
events of future transaction. The transaction that are associated with the company includes
certain amount of expenditure that mainly includes the amount of income tax which is billed
within the assets and liabilities of the entities (Bauman & Shaw, 2016). The carrying amount is
differentiated with tax base of assets and liabilities which is required to be carried forward in the
exception of credit limit and deferred tax liabilities. The subject to profit able amount is limited
with the expectation along item other deferred tax assets for the annual profit which is earned
from the beginning of the financial year. IAS 12 has certain objectives that are required to be
followed at the time of recognition of assets or liabilities from the company that would be
recovered and financed in the upcoming years (Šapkauskienė & Leitonienė, 2014). The recovery
or settlement of consequences of future tax is required to be recognised within the similar time of
the recognised assets and liabilities of the company.
The tax base of the assets and liabilities includes the attributed amount which are required
to be includes for the overall purpose of tax and pointing out the differences along with the
financial position of the company that is Shady Sheds limited in the market that is targeted in
nature. The taxable amount that is current in nature includes the period of accounting which is
recognised by the liability that has its extension which has not been settled over the time period

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(Jarva, 2014). The extent to the amount of assets is the amount of money that has already been
paid at the time of excess of due payment. The benefit of the tax loss is required to be carried out
as it would be helpful in recovering the amount from the tax loss. The recognition of assets
includes the current tax and assets which are to be measured from the authorities of taxation that
uses their tax and laws by the process of substantial excessive date in the balance sheet of the
firm (Knauer & Wöhrmann, 2016). The bases of the tax helps in determining the amount of
differences that mainly represents the amounts that would be recorded in the balance sheet that
are generally tax based in nature.
The guidance for determining the assessment of taxable income includes the benefits of
carrying amount that are included with the tax consequences that would be equal to the amount
of tax base. The prescribing of accounting treatment of income tax includes the basis of the
taxable amount that are generally unpaid in nature with reckoning the tax liability of the
company (Avallone & Quagli, 2015). IAS 12 requires the recognition of deferred tax liabilities
or a deferred tax assets for determining the temporary differences between the tax base of the
assets along with the amount that is carrying and it has been highlighted in the statement of
financial position also coined as balance sheet. The attributable amount of taxable income
includes the taxable income which is also associated with the assets or liabilities of the tax
purpose. A certain amount of deferred tax liability arises at the time when an entity is generally
not carrying the certain amount from another assets or liabilities. Shady Sheds limited has
recorded the accounting loss for over a period of time which is recognised as potential
redundancy pay outs (Wen & Moehrle, 2016). These particular amount of cost are not at all
deductible until the income tax is paid by the company to the government.

16FINANCIAL REPORTING AND DISCLOSURE
Part 2
Discussing deferred tax assets from employee benefits liabilities that has been recognised
Deferred tax assets from the employee benefits includes the deferred income tax that
mainly records the differences between the bases of income tax and financial reporting of the
company. Every organisation generally conserve the temporary differences as a reserve in the
balance sheet of the firm (Sherrill, 2016). The allowances of the valuation is totally based on the
valuable position of the assets that results in the temporary form of reduction in the total amount
of taxable income for the future years. The components of the deferred tax assets are included in
the consolidated financial statement which is realisable in the amount of future taxable income
by reversing the temporary differences the strategies for overall process of planning of tax. The
reversal of the valuation amount includes the effective planning for tax that includes the
operation of the taxable income along with benefits of the employees that is required to be
recognised. The determination of valuation of assets allows the consolidated statement in the
operation which manages the judgement for recovering the deferred tax assets (Jordan & Clark,
2015). The assumptions that are made into association which is available with the strategies for
tax planning. The management of the judgement includes the factors that are expected in the
capital gain income with the availability of capital gain income in the business firm.
Tax loss recognised as deferred tax assets
Deferred tax assets and liabilities is adjusted in the books of accounts that might affect
the income tax along with the timing differences that is ruled against the Companies Act that
specifically looks the terms and condition of the taxable income and expenditure (Majid, 2015).
The different between the booking income and taxable income has been reversed in the
subsequent period of time which might not be capable in reversing the allocated time period. The

17FINANCIAL REPORTING AND DISCLOSURE
entity on the balance sheet is not required to be fulfilled from the future taxable income which
mainly pertains the business professions along with other sources of income. The future value of
reversal allowances is required to be determined with the unrealised benefits that mainly depends
on the nature of the taxable income along with planning the strategies for taxes (Bepari &
Mollik, 2017). It includes certain assumptions that are required to be adjusted in certain
conditions of business. The economic condition of the business includes the effective criteria that
manages the judgement which is based on the factor for several benefits that would be provided
to the employees. The changes in expectable taxable income includes the income from capital
gain that provides benefits to the employees of an organisation (Hassine & Jilani, 2017). The risk
factors that are related to the company which might changes in the participative tax provisions
along with changes in tax laws for exposing the additional taxable income which might affect the
overall outcome from the company.

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