Question

BTN 10-5 Access The YAHOO (ticket:YHOO) 10-K report for the year ended December 31, 2015, filed on Febrausry 29, 2016 at SEC.gov.

Discuss th following:

What is good will and how is it calculated?

what amount of goodwill is reported on YAHOO's balance sheet?

What percentge of total assets does its goodwill represent? Is goodwill a major asset for YAHOO? explain

Answer 1

The goodwill of a business is the whole advantage of the reputation and connection with customers together with the circumstances, whether of habit or otherwise, which tend to make that connection permanent. It represents in connection with any business or business product the value of the attraction to the customers which the name and reputation possesses.”

International Financial Reporting Standards (IFRS) IAS 38, "Intangible Assets," does not allow recognizing internally generated goodwill (Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance). The only accepted form of goodwill is the one that acquired externally, though business combinations or acquisitions.

For example, Facebook (FB

) bought the domain name fb.com for $8.5 million from American Farm Bureau Federation. Apparently, this domain name did not have any other benefit than name. Thus, the whole amount paid can be considered as goodwill and Facebook would recognize it on its balance sheet. However, before the acquisition, the American Farm Bureau Federation could not recognize it on its balance sheet.

Calculating Goodwill

According to IFRS 3, "Business Combinations," goodwill is calculated as the difference between the amount of consideration transferred from acquirer to acquiree and net identifiable assets acquired. The general formula to calculate goodwill under IFRS is:

Goodwill

=

Consideration transferred

+

Amount of non-controlling interests

+

Fair value of previous equity interests

-

Net assets recognized

As you see, the amount of non-controlling interests (NCI) appears in the formula, thus the methods of non-controlling interest measurement will affect in determining the goodwill. Under IFRS 3 there are two methods for measuring non-controlling interests (NCI):

1. Fair value
2. non-controlling interest’s proportionate share of the acquiree’s net identifiable assets

Example: “A Inc.” acquires “B Inc.”, agreeing to pay $150 million to obtain a 90% interest in B. The fair value of the non-controlling interest is $16 million. Considering that the fair value of net identifiable assets to be acquired is $140 million and that no equity interests existed, the amount of the goodwill will be: $26 million ($150 + $16 - $140). This is also called "full goodwill method."

Under the second method of measuring the NCI, the goodwill value that is recognized is $24 million (150 + [140 x 0.1] - 140­). Thus, there is a difference of $2 million between the amount of the goodwill calculated under the two methods.

The Bottom Line

Despite being intangible, goodwill is quantifiable and is a very important part of a company's valuation.

Yahoo! Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in thousands

  

		Dec 31, 2016	Dec 31, 2015	Dec 31, 2014	Dec 31, 2013	Dec 31, 2012
?	Customer, affiliate, and advertiser related relationships	284,216	355,568	369,914	293,612	162,389
?	Developed technology and patents	128,732	170,289	206,422	261,435	270,485
?	Tradenames, trademarks, and domain names	45,976	67,119	107,841	107,381	50,382
?	Intangible assets, gross carrying amount	458,924	592,976	684,177	662,428	483,256
?	Accumulated amortization	(297,280)	(245,707)	(213,335)	(244,620)	(329,283)
?	Intangible assets, net	161,644	347,269	470,842	417,808	153,973
?	Goodwill	415,809	808,114	5,163,654	4,679,648	3,826,749
?	Intangible assets and goodwill, net	577,453	1,155,383	5,634,496	5,097,456	3,980,722

Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions.

Yahoo! Inc.'s goodwill declined from 2014 to 2015 and from 2015 to 2016.