...In accounting, goodwill is an intangible asset associated with a business combination. Goodwill is recorded when a company acquires (purchases) another company and the purchase price is greater than the combination or net of 1) the fair value of the identifiable tangible and intangible assets acquired, and 2) the liabilities that were assumed. Goodwill is reported on the balance sheet as a noncurrent asset. Since 2001, U.S. companies are no longer required to amortize the recorded amount of goodwill. However, the amount of goodwill is subject to a goodwill impairment test at least once per year. Outside of accounting, goodwill could refer to some value that has been developed within a company as a result of delivering amazing customer service, unique management, teamwork, etc. This goodwill, which is unrelated to a business combination, is not recorded or reported on the company's balance sheet.In accounting, goodwill is an intangible asset associated with a business combination. Goodwill is recorded when a company acquires (purchases) another company and the purchase price is greater than the combination or net of 1) the fair value of the identifiable tangible and intangible assets acquired, and 2) the liabilities that were assumed. Goodwill is reported on the balance sheet as a noncurrent asset. Since 2001, U.S. companies are no longer required to amortize the recorded amount of goodwill. However, the amount of goodwill is subject to a goodwill impairment test at least...
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...WHAT IS GOODWILL? The main method used by businesses to classify assets is to split them into tangible assets, which have a separate existence from the business (examples of which would include buildings, land and machinery), and intangibles which do not. Some clear examples of intangibles include goodwill, patents, research and development expenditure and trademarks. Intangible assets are usually created within the organisation over a period of time, by the company itself, rather than acquired from an external source and are rarely sold off individually they can normally only be sold in conjunction with associated tangible assets. Robins, in his essay "FRS 10: Goodwill and Intangible Assets" identifies three sources of goodwill within a business. He states these as: 1. Expertise of the workforce: Current accounting practices do not allow for the inclusion of knowledge or business acumen to be included within the balance sheet. In this way there is no allowance for the expertise of the workforce or the value of human resources to be recorded as an asset on the balance sheet. 2. The reputation of the product(s) of the business: Often, if the product has a household name attached, which generate positive connotations then sales and profits will be "boosted" on the basis of that reputation. 3. The general economic environment: Current levels of interest and exchange rates as well as levels of investor confidence generally will have a major influence on the value...
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...liabilities of the vendor (i.e.) the vendor will retain the cash and be left to pay off some or all of the liabilities. Business Purchase price: This is the price to be given by the purchaser to the vendor. The purchaser and the vendor will calculate this price together (usually on the basis of the assets and liabilities taken over by the purchaser) or on the basis of the average profit of the business during the past years. Calculation of Goodwill or Capital Reserves(negative goodwill): Sometimes the purchaser will have to pay for Goodwill or receive Capital Reserve. Goodwill or capital reserve is the difference between net assets and business purchase price. Goodwill / Capital reserve = Business Purchase Price – Net Assets (Positive figure is goodwill and negative figure is capital reserve) Factors / reasons for Good will: A person has to pay for goodwill when taking over a business or when admitted as a partner because of Profitability Reputation Locality Public relation Existing business means, the business is being operated and a balance sheet is there for the business at any time. The types of business purchase can be mentioned as follows: a) An individual (a person) purchases a business b) A partnership or a sole trader acquires the business of a sole trader c) Two or more sole traders join together to form a partnership d) A limited company takes over the business of a partnership or a sole trader Why business purchases are taking places? a) ...
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...construction, recording gain or loss on asset disposal and adjusting goodwill for impairment are all areas in which numbers on a financial statement can be distorted. There are rules and regulations regarding each one that a company should follow and auditing of these areas is necessary for financial statement compliance. Any organization must recognize that the GAAP is an ever evolving set of regulations and standards that should be followed. Using the lower cost of market is defined as comparing the market value of each fixed asset with its cost and then using the lower of the two as an inventory value. (FASB ASC 30-10) Cost is defined as how much a company pays for an item if it purchases the item or how much it cost the company to manufacture the item. The market (How to Use Lower Cost of Market, 2012) value of an item is usually its replacement cost; unfortunately replacement cost is not always an accurate number to use. The net realizable value is the expected selling price of an item minus any selling cost or costs to complete the item, which will inflate the replacement cost. Replacement Cost can also be lower than it should be when the net realizable value minus the normal profit is placed on an item. The GAAP requires that all inventory that is in reserve being stated and value at either the cost or the market value method. (Lower Cost of Market Method) Sometimes an adjustment must be made to the balance sheet when the cost of the inventory is higher than the market value...
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...Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities Chapter 01 Intercorporate Acquisitions and Investments in Other Entities Multiple Choice Questions In order to reduce the risk associated with a new line of business, Conservative Corporation established Spin Company as a wholly owned subsidiary. It transferred assets and accounts payable to Spin in exchange for its common stock. Spin recorded the following entry when the transaction occurred: 1. Based on the preceding information, what number of shares of $7 par value stock did Spin issue to Conservative? A. 10,000 B. 7,000 C. 8,000 D. 25,000 2. Based on the preceding information, what was Conservative's book value of assets transferred to Spin Company? A. $243,000 B. $263,000 C. $221,000 D. $201,000 1-1 Chapter 01 - Intercorporate Acquisitions and Investments in Other Entities 3. Based on the preceding information, what amount did Conservative report as its investment in Spin after the transfer of assets and liabilities? A. $181,000 B. $221,000 C. $263,000 D. $243,000 4. Based on the preceding information, immediately after the transfer, A. Conservative's total assets decreased by $23,000. B. Conservative's total assets decreased by $20,000. C. Conservative's total assets increased by $56,000. D. Conservative's total assets remained the same. During its inception, Devon Company purchased land for $100,000 and a building for $180,000. After exactly 3 years, it transferred these...
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...Chapter 3 AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS Chapter Outline A BUSINESS COMBINATION UNDER GAAP INCLUDES COMBINATIONS IN WHICH ONE OR MORE COMPANIES BECOME SUBSIDIARIES OF A PARENT CORPORATION. A A corporation that holds a majority interest (over 50%) of the voting stock of another corporation is referred to as the parent company. B The interest not held by the parent company is referred to as the noncontrolling interest. C A corporation whose outstanding voting stock is over 50% owned by another corporation is a subsidiary of that corporation. D GAAP states that the acquisition of additional shares of a subsidiary is recorded by an increase in the investment account and a reduction of the noncontrolling interest, based on the carrying amount of the noncontrolling interest at the additional acquisition date. APIC is adjusted for any difference between the price and the carrying amount. E The parent company and subsidiary exist as separate legal entities and maintain separate accounting records. However, each reporting period their separate accounting records are combined into one set of consolidated financial statements for reporting the financial position and results of operations of a consolidated reporting entity. 1 Consolidated financial statements are prepared for all the companies under the control of a single management team to reflect a single reporting entity with multiple divisions. 2 The purpose of consolidated...
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...preceding information, the differential reflected in a consolidation worksheet to prepare a consolidated balance sheet immediately after the business combination is: A. $0. B. $25,000. C. $70,000. D. $45,000. Based on the preceding information, what amount should be allocated to goodwill in the consolidated balance sheet, prepared after this business combination? A. $0 B. $25,000 C. $70,000 D. $45,000 2. On December 31, 20X9, Add-On Company acquired 100 percent of Venus Corporation's common stock for $300,000. Balance sheet information Venus just prior to the acquisition is given here: At the date of the business combination, Venus's net assets and liabilities approximated fair value except for inventory, which had a fair value of $60,000, land which had a fair value of $125,000, and buildings and equipment (net), which had a fair value of $250,000. 3. Based on the information provided, what amount of inventory will be included in the consolidated balance sheet immediately following the acquisition? A. $60,000 B. $75,000 C. $15,000 D. $45,000 4. Based on the information provided, what amount of goodwill will be included in the consolidated balance sheet immediately following the acquisition? A. $30,000 B. $15,000 C. $85,000 D. $45,000 Based on the information provided, what amount will be included as investment in Venus Corporation in the consolidated balance sheet immediately following the acquisition? A. $0 B. $395,000 C. $255,000 D. $300,000 5. Enya Corporation...
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...Module 9 Intercorporate Entities DISCUSSION QUESTIONS Q9-1. (a) Trading securities are reported at their fair value in the balance sheet. (b) Available-for-sale securities are reported at their fair value in the balance sheet. (c) Held-to-maturity securities are reported at their amortized cost in the balance sheet. For marketable securities, fair value and market value are usually synonymous. Thus, trading and available-for-sale securities are recorded on the balance sheet at market value. Q9-2. An unrealized holding gain (loss) is an increase (decrease) in the fair value of an investment security that is still owned. Q9-3. Unrealized holding gains and losses related to trading securities are reported in the current-year income statement (which flows to retained earnings). Unrealized holding gains and losses related to available-for-sale securities are reported as part of a separate component of stockholders' equity called Accumulated Other Comprehensive Income (AOCI). Q9-4. Significant influence gives the owner of the stock the ability to significantly influence the operating and financing activities of the company whose stock is owned. Normally, a 20% through 50% ownership of the company's voting stock provides evidence of significant influence. The equity method is used to account for investments with significant influence. Such an investment is initially recorded at cost; the investment is increased by the proportionate share of the...
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...Financial accounting Course Assessment 1 FACC/mcyildv2/July14/1 Part A Balance sheet: Income statement: Workings Balance sheet: a/ Tangible fixed assets: 66000£ of fixtures and fittings bought as per August 1st, 2013, needed to be depreciated over 6 years on a straight line method, taking into account a residual value of 10%, meaning 6600 £. This means a yearly depreciation amount of 9900£, which can also be seen on line ‘p’ in the income statement. The 56100£ as the balance on the tangible fixed assets is the difference between the purchase value of 66000£ and the depreciation amount of 9900£. b/ WIP means Work in Process. These assets have been bought before July 31st, 2014, but according to the description have not yet started to be used in the business. Also this 10000£ was not yet reflected in the cash statement as was not yet paid, thus was added on line ‘j’, trade payables. As these assets are not yet used, these are also not being depreciated yet. Only form the moment they are being used, they will be included in depreciation. Therefore we have catalogued them here as WIP. c/ Inventory: the 32000£ is the difference between the 38000£ and the 50% of the 12000£ of inventory which will only be sellable for half of the price, meaning we need to show the lower of the value of the carrying amount and the market value, which in this case is the market value. The write off of this inventory is shown on line...
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...------------------------------------------------- FROM: DENNIS SMITH DS ------------------------------------------------- SUBJECT: PURCHASING SHERATON MANUFACTURING ------------------------------------------------- Purchasing Sheraton manufacturing(主题句) ------------------------------------------------- （目的）This memo is in response to your questions concerning the purchase of Sheraton ------------------------------------------------- Manufacturing. （注释memo）The memo will first explain goodwill and then discuss how to determine its value. By determining the value of Sheraton’s goodwill you will have a dollar amount to help you determine how much you want to offer for the company as a whole. ------------------------------------------------- ------------------------------------------------- What Is Goodwill?（小标题） ------------------------------------------------- ------------------------------------------------- Goodwill is an intangible asset（无形资产） made up of items which may contribute to the value and...
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...important for the preparation of consolidated statements because the specific consolidation procedures depend on the way in which the parent accounts for its investment in a subsidiary. • The consolidated statements, however, are the same regardless of the method used by the parent company to account for the investment. 4-3 Consolidation-GAAP • Consolidated and unconsolidated financial statements are prepared using the same generally accepted accounting principles. 4-4 Roadmap—Chapter 4 Roadmap—Chapters 5 to 10 • After introducing the consolidation workpaper, this chapter provides the foundation for an understanding of the preparation of consolidated financial statements by discussing the preparation of a consolidated balance sheet immediately following the establishment of a parent-subsidiary relationship. • Chapter 5 includes the preparation of a full set of consolidated financial statements in subsequent periods, that is, after the date of acquisition. • Chapters 6 through 10 deal with intercorporate transfers and other more complex topics. 4-5 4-6 1 Consolidation Workpapers • The consolidation workpaper provides a mechanism for efficiently...
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...incurred. c. deducted from other contributed capital. d. none of these. 3. Eliminating entries are made to cancel the effects of intercompany transactions and are made on the a. books of the parent company. b. books of the subsidiary company. c. workpaper only. d. books of both the parent company and the subsidiary. 4. One reason a parent company may pay an amount less than the book value of the subsidiary's stock acquired is a. an undervaluation of the subsidiary's assets. b. the existence of unrecorded goodwill. c. an overvaluation of the subsidiary's liabilities. d. none of these. 5. In a business combination accounted for as an acquisition, registration costs related to common stock issued by the parent company are a. expensed as incurred. b. deducted from other contributed capital. c. included in the investment cost. d. deducted from the investment cost. 6. On the consolidated balance sheet, consolidated stockholders' equity is a. equal to the sum of the parent and subsidiary stockholders' equity. b. greater than the parent's stockholders' equity. c. less than the parent's stockholders' equity. equal to the parent's stockholders' equity. 7. Majority-owned subsidiaries should be excluded from the...
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...ABACUS, Vol. 45, No. 3, 2009 doi: 10.1111/j.1467-6281.2009.00295.x MARTIN BLOOM Accounting For Goodwill abac_295 379..389 This article provides a means of resolving one of accounting’s ongoing problems—how to account for goodwill in an era where the unidentifiable intangible asset is often an entity’s largest value component. Despite the general recognition that, in practice, the two classes of goodwill are indistinguishable in terms of their ability to generate streams of revenue, a distinction is traditionally drawn between internally generated and purchased goodwill. The former should not be brought to account because it is impossible to do so within the accepted rules of double entry bookkeeping and historical cost based accounting. On the other hand, there is no difficulty in bringing purchased goodwill to account, but controversy has always existed as to how to treat the amount once recognized. It can confidently be expected that, as anomalies and practical difficulties manifest themselves in practice, the current impairment regime will, in its turn, be abandoned. Key words: Accounting; Double account; Goodwill, internally generated, purchased. Controversy on how to account for goodwill has continued over many decades. It is certainly an example of Sterling’s (1975) lament that because of the way we conceive of issues ‘accountants do not resolve issues, we abandon them’ (quoted in Chambers, 1995). The ideas proposed here are based on redefining the problem. They...
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...Drivers of Industry Financial Structure In order to facilitate our analysis we divided the companies into services, retail and R&D. The first step was to divide the balances between the ones that had a value for R&D/Sales and the ones that didn’t. So we have balance sheets A, F, G and J and the companies that require R&D are the Developer of Prepackaged Software, the On-line Retailer, the Pharmaceutical Company and the Manufacturer of Electronic Communications Equipment. Now we have six remaining balance sheets and six companies. We divided these remaining companies into services and retail. Companies in the service business usually have low inventories so we have balance sheets C, D and I and the Major Passenger Airline, the International Hotel Chain and the Temporary Staffing Agency. The remaining companies are the Warehouse Club for Food and General Merchandise, the Supermarket Grocery Retailer and the Manufacturer and Marketer of Consumer Products and these industries are characterized by high receivables, high inventories and high inventory turnover so, we can conclude that the corresponding balance sheets are B, E and H. We will now perform more in-depth analysis in order to match each company to each balance sheet. R&D Companies On-Line Retailer In order to specify what balance sheet corresponds to the On-line Retailer we must first define some of the characteristics of On-line Retailers. On-line Retailers require some R&D (9,7%) exactly because they are on-line...
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... BACKGROUND: In 1494, a mathematically minded Veteran monk named Luca Pacioli published his “Summa de Arithmetica, Geometrica”, the first accounting textbook. It illustrated double-entry accounting, a system that makes the modern corporation manageable, even possible. Today, half a millennium later, Pacioli’s process, still pretty much intact, is being challenged like never before. Pacioli’s accounting system lets businesses keep track of changes in their assets. But this system deals primarily with tangible assets such as cash, inventory, investments, receivables, property, plant, and equipment. What go unrecorded are intangible assets such as quality of management, customer loyalty, information infrastructure, trade secrets, patents, goodwill, research, and, considered by some, the ultimate intangible, knowledge—a company’s intellectual capital. FASB chairman Edmund Jenkins attests, “The components of cost in a product today are largely R & D, intellectual assets, and services.” Professor James Quinn of Dartmouth College said, “Even in manufacturing, perhaps three-fourths of the value added derives from knowledge.’’ This refrain is echoed by...
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