Goodwill Impairment (Research Paper Sample)

Goodwill Impairment
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Institution:
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Abstract
When addressing the issue of goodwill impairment, the concern is based on accounting for the intangible parts of the business assets. The focus of the presentation addresses how intangible assets gained by personal effort or as a partnership are accounted for in the financial statements upon their acquisition. It counts much on how the intangible assets should be accounted for after they have been represented in the financial statements.
Contents TOC \o "1-3" \h \z \u Abstract PAGEREF _Toc418901432 \h 2Section One PAGEREF _Toc418901433 \h 4Introduction PAGEREF _Toc418901434 \h 4Findings PAGEREF _Toc418901435 \h 4Difference between This statement and Opinion 17 PAGEREF _Toc418901436 \h 4How the changes in the Statement Improve Financial Reporting PAGEREF _Toc418901437 \h 5Conceptual framework PAGEREF _Toc418901438 \h 5Identifying an asset that may be impaired PAGEREF _Toc418901439 \h 5Goodwill impairment testing PAGEREF _Toc418901440 \h 6Chapter Two PAGEREF _Toc418901441 \h 6Media release PAGEREF _Toc418901442 \h 6Market update PAGEREF _Toc418901443 \h 6Goodwill impairment PAGEREF _Toc418901444 \h 6Expected profit PAGEREF _Toc418901445 \h 7Interim Dividend PAGEREF _Toc418901446 \h 7Segment reorganization PAGEREF _Toc418901447 \h 7Reference List PAGEREF _Toc418901448 \h 8
A critical analysis of accounting for goodwill for Metcash Ltd
Section One
Introduction
Various bodies have come up with the idea of analyzing the goodwill impairment. The Financial Accounting Standard Board is in a position to issue revised standards for the goodwill testing. It is done at a less cost estimate. Due to the relevant changes, the way public and private sectors measure a goodwill impairment loss does not change. At the same time, companies will be excused from performing the traditional two-step impairment testing (KPMG, 2014). The management has the responsibility to understand the implications of goodwill on the effects and success of the business entity. In the business context, goodwill is the value of an asset in the company that does not have a physical representation. It is regarded as intangible but still has a quantifiable prudent value in the management roles of the business. Goodwill can be the reputation that the firm will have with the particular clients. Quality assurance remains a significant contributor for the institution and the entire company. Due to that, the organization will be in a position to provide relevant services to the clients and any other parties concerned. Goodwill in the company is usually an intangible asset and should be listed as a separate item on a company’s balance sheet.
The goodwill value should not be deducted annually over a particular period; it is prudent to determine the fair value of the reporting units. The strategy can be realized using the present value of future cash flow, and it is important to do a comparison of it to the carrying value of the particular impairment (KPMG, 2014). In some instances, the value is normally less than carrying value, and the goodwill value will need to be reduced in the right proportion so that the fair value is equal to the carrying value. On the particular stage, the impairment loss will always be reported as a separate line item when preparing the income statement. At the same time, the new adjusted value of the goodwill will be reported in the balance sheet.
Findings
Financial statements have so many users when analyzing the performance of the organization. Examples of the applications including the management and even the clients for information. Analysts and other users of financial statements came up with the idea that intangible assets are improving on the importance on the basis of economic resources for many entities. It is frequently considered to be an increasing proportion of the assets acquired in many transactions that are based on monetary influence (KPMG, 2014). Firms commonly invent the analysis the intangible assets with a lot of concern since they are improving on importance. On the latter stages of the development of accounting concepts, the financial statement users indicated that they failed to recognize goodwill as an important part of the analysis process. They failed to amortize expenses as being useful information for analyzing investments.
Critical review of accounting for goodwill impairment
Difference between the statement and Opinion No. 17
Opinion No. 17 illustrates the accounting concept for the intangible products. It positions for the concept of accounting for the goodwill. The statement changes the unit of account for goodwill and picks on a distinct approach to the implications of goodwill, and intangible assets are considered in the prior periods before their initial recognitions in the accounting process. Goodwill and some intangible assets in various companies are not amortized, and due to that, their amounts fail to decrease at the same time. The numbers also fail to reduce in the same way as under previous standards. The analysis of the impairment standards is of very crucial value in the evaluation process of most institutions. Under previous standards, a report could indicate the existence of more volatility in the reported income. The primary significance of the particular story is that impairment losses are likely to occur at a rate that is not constant and in varying amounts.
How the changes in the Statement Improve Financial Reporting
The crucial importance of the changes is that the financial statements of entities that acquire goodwill and other unspecified intangible assets bring the attention of reflecting on the basis of the economies of the assets. The implication of the above strategy is to place the financial users in a better position in the understanding made and even on the subsequent performance of the relevant investment details (Ramanna & Watts, 2012). A better understanding and expectations of the variations in the cost of different assets over time can be improved by the disclosure of the intangible assets including the goodwill of the relevant companies. It will hence improve the abilities of the management to assess future profitability and cash flows of the entire organization.
Conceptual framework
Some organizations fail to amortize goodwill hence making it inconsistent with the concept of representational faithfulness. The relevant concepts are typically discussed in FASB Concepts Statement No. 2. The board calls for much significant implications that will ensure that the organization realizes the set goals and objectives. The board is in a position to determine both the relevance and reliability and costs and benefits that will tend to improve the productivity of the financial reporting. On the conclusion of the set objectives by the board of study, it is important to note that some two exceptions will take effect and make the whole statement to be valid. Goodwill and intangible which came to be realized after the date of June 30, 2001, managed to be subjected immediately to the amortization and depreciation provisions of the particular statement presented by the board. The entire management process requires that organizations that are not recognized by the government should employ some relevant strategies in their management process. The provisions presented by the board are not in a position to cater for mutual enterprise or organizations that are considered to be not-for-profit organizations. It will only count once the board shall have revised the entire processes (Ramanna & Watts, 2012).
Suggestions to answer the questions posed by the IASB in their submission
Identifying an asset that may be impaired
Any particular firm has to determine precisely if an asset can carry any amount that may be higher than its recoverable amount. The assessment has to be conducted in the end, to determine the likeliness of the profitability of the decision taken by the organization. Impairment can have both the internal and external indicators. The external indicators are linked to being directly involved in the governmental implications in the particular institutions. The external sources include the market value declines that tend to prove a direct link between the impairment factors. The current economy is characterized with the implications of the technological advancements that tend to drift the economy from the traditional perspective of handling ideas to more creative and innovative methods of analyzing management requirements. The level of impairments can also be indicated by the increase in market interest rates. As the market rates increase, it will lead to the impairments of the firm. The assets of the company play a significant factor in ensuring that the liquidity factor of the business is determined. When the net assets of the company are higher than the market capitalization, it can become a clear indicator of the impairment of the organizations. Impairment can also be created by some internal sources that tend to limit the management factor of the company. Physical damage can be a direct factor that tends to produce the effect. The economic performance may be observed to be the worst in the entire market. Once it is indicated as the most dangerous, it becomes an internal source of impairment.
Goodwill impairment testing
Testing of the disability standards is conducted to ensure that costs are made simple and can be accessed with a lot of ease. The testing process requires some principles that need to be implemented in making the entire process a success. In the consideration of impairment testing, the value to be applied should be the implied fair value of goodwill. The process of testing requires two steps that include the calculation of the fair value of any unit that is being reported. It then becomes crucial to compare...