Discussions about the existence of purchased goodwill
and how it should be treated are far from new.
* If the fair value of the purchase consideration exceeds the fair value of the net assets acquired, purchased goodwill
should be recognized as an asset and measured initially at the amount of that excess.
Thus, although the goodwill is amortizable in X's hands, if X contributes its purchased goodwill
to Z and Z is related to Y because Y has a greater-than-20% interest in Z, the goodwill contributed by X will cease to be amortizable goodwill; X, thus, will not obtain the benefit of amortizable tax basis.
As previously noted, the long-standing required treatment of purchased goodwill
was its systematic amortization over a maximum of 40 years.
FRS10 states that it "requires purchased goodwill
The first involves determining whether two separate methods of accounting for business combinations--purchase and pooling of interests--are justified, and the second is determining the appropriate method of charging to income the cost of purchased goodwill
and other purchased intangibles.
The purchase method establishes a new measurement basis for already recognized assets and liabilities of the acquiree, as well as recognizing and measuring additional assets and liabilities (including purchased goodwill
) not previously recognized.
Despite winning a higher sale price than expected, after expenses, overseas taxation and the reinstatement of pounds 50 million of purchased goodwill
, McKechnie will have to book a loss on the transaction of pounds 10 million.
company capitalizing purchased goodwill
and amortizing it over a 40-year period in accordance with U.S.
Noncontrolling interest of $250,000 = 0.2 x [$100,000 + $400,000] (S Company's stockholders equity) + 0.2 x [$900,000 - $500,000] (identifiable asset revaluation) + [$450,000 (total goodwill) - $380,000 (purchased goodwill
)] = $100,000 + $80,000 + $70,000.
Instead purchased goodwill
will remain on the balance sheet as an asset subject to impairment reviews.
Although much attention has been given to goodwill by analysts in the marketplace, little, except the recording of purchased goodwill
, has been reported in the balance sheet which accountants offer as a measuring instrument.