Question

As you have learned the excess value assigned to a specific asset is amortized over the asset revised useful life. Many investors, including Warren Buffet,belief this is faulty accounting. They believe forcing companies to amortize the excess purchase price bears no resemblance to the economic reality of the transactions. The FASB has also discussed the above issue in their simplification project.

REQUIRED: Prepare a short opinion piece (one to two pages) discussing the above issue and your position. Ensure you discuss the financial statement impact

Answer 1

Well I think such amortization is not that wrong. Since , the time assets were purchased they were considered to generate a good amount of earning opportunities for the company till their usable life. But as the time passes they loses their shine and with the passage of time, earning opportunities with them seems to be gloomy and as a result it is slowly slowly required to be vanished from the balance sheet as the asset and by the time they will no longer be in a position to generate revenue for the company they cease to be called assets of the company and also they will be remove from the balance sheet at that point of them.

This is for the time being considered as the best practice and I see a very small margin of error in it .Also we know that nothing in this world is perfect. Similarly, this method also have some flaws in it like unnecessarily charging burden of such amortization on the current profitability of the company but it is necessary for true and fair representation of the financial position as a whole.

So, for summing up the whole discussion, we may conclude that till date this system is the most suitable method which leads to true and fair representation of financials .