ACCT2542 - ABACUS, Vol. 45, No. 3, 2009 doi:...

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MARTIN BLOOM Accounting For Goodwill This article provides a means of resolving one of accounting’s ongoing problems—how to account for goodwill in an era where the unidenti±able intangible asset is often an entity’s largest value component. Despite the general recognition that, in practice, the two classes of goodwill are indis- tinguishable in terms of their ability to generate streams of revenue, a distinction is traditionally drawn between internally generated and pur- chased 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 dif±- culty in bringing purchased goodwill to account,but controversy has always existed as to how to treat the amount once recognized.It can con±dently be expected that,as anomalies and practical dif±culties 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 rede±ning the problem. They were originally developed for a doctoral thesis completed at The University of Sydney, and further re±ned into a book published under the title Double Accounting for Goodwill: A Problem RedeFned (Bloom, 2008). Reference to the use of the double account system of accounting was mooted by Chambers (1976, p. 45) as a way of handling a particular type of accounting problems that had proved irresolvable. He had not, however, turned his attention to using the system to better account for goodwill. I was drawn to the research following some forty years as a professional accountant and auditor, during which time I became convinced that the conven- tional accounting treatment of goodwill was unsound in theory and of little use in practice. The proposal is limited to accounting for goodwill in the context of publicly listed entities, in particular those corporate entities included in the All-Ordinaries Index on the Australian Stock Exchange (ASX). It follows that it will exclude those companies involved predominantly in the mining and extractive industries, as the concept of goodwill, as normally understood, is not relevant to that category. There are no particularly Australian issues which would limit the applicability of the proposals and the general discussion to this country and the implication of the M artin B loom ( is a Director in the Forensic Division of Deloitte.
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This note was uploaded on 03/05/2012 for the course ACCT 2542 taught by Professor Knapp during the Three '11 term at University of New South Wales.

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ACCT2542 - ABACUS, Vol. 45, No. 3, 2009 doi:...

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