Question

In: Accounting

We have reviewed the topic of Goodwill on the Balance Sheet which is created when a...

We have reviewed the topic of Goodwill on the Balance Sheet which is created when a company acquires another and pays more than the market value of the acquired company's net assets.

What I want you to address in this discussion board are the following:

A. What type of "event" results in goodwill being recorded on a company's balance sheet?

B. How is goodwill evaluated to determine whether this specific asset is impaired? If it is deemed to be impaired, what actions does a company need to take?

C. How do you view goodwill on the balance sheet - specifically, if certain levels of it would cause concern, identify what level of goodwill would cause you concern and why?

D. If it would not concern you regardless of the amount of goodwill on the balance sheet, explain why.

Solutions

Expert Solution

Answer:-

A-. Goodwill:- Goodwill is an intangible asset that is associated with the purchase of one company by another. Specifically, goodwill is the portion of the purchase price that is higher than the sum of the net fair value of all of the assets purchased in the acquisition and the liabilities assumed in the process. it is the value of reputation of business..

"Event" results in goodwill :- The goodwill is only recorded in balancesheet when some consideration is paid for it.

means only purchasedds goodwill is recorded in balancehseet.

B- Meaning if Impairment : Impairment of an asset occurs when the market value of the drops below historical cost.

it result in deciling cash flow.

The two method of impairment

1- income approach

2-market approach

the income approach, estimated future cash flows are discounted to the present value. With the market approach, the assets and liabilities of similar companies operating in the same industry are compared

Action by company in case of impairmnent- The company shall disclose it in its balancesheet at impairment cost and if required show the information aboit it in boards report.

C-.Goodwill in balacesheet :- Proper discloser is required of goodwill regarding the treartment in the books and how it would be recorded

D- Not concern :- when only purchased goodwill is record in balancesheet and all the required discloser is disclosed the it amount to not any concern.

ekkarill92 answered 2 years ago
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