Filter by Categories
Accounting
Banking

Accounting




Financial Reporting Goodwill


A goodwill whose value is derived from financial statements and for financial reporting purposes. More specifically, the meaning of goodwill for financial reporting differs from the legal meaning. The latter is confined to all value over and above the tangible asset value. For financial reporting, goodwill has many components, some of which relate to an entity (being an acquired company) and others relate to other factors such as combination process. The main components are:

  • the excess of fair value over the book value of net assets at a specific date (e.g., for acquisition accounting, the date of acquisition).
  • the fair value of other net assets (those not recognized at that date).
  • the fair value of “going concern” element of an entity.
  • the fair value of expected synergies from a combination.
  • the premium/ discount: overpayment as in the case of a bidding up of the price by potential acquirers and underpayment that may arise from a distress sale/ fire sale situation.
  • measurement error (usually, overvaluation of the consideration or price by an acquirer).

These components do not conceptually constitute goodwill in the real sense of the word, but are only considered for accounting purposes.



ABC
Accounting is the language of business, everywhere, worldwide. It is the means by which virtually every business communicates information about its operations, irrespective of size, scale, objectives, ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*