ACCT2542 - the calculation of the value of goodwill is...

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Internally generated goodwill is one of the major constituents of market capitalization. However, according to AASB138 it states that ‘Internally generated goodwill shall not be brought to account’. In other words, this dismisses approximately 45% of the market capitalization of all companies listed in the ASX which is a significant amount. Overall, goodwill either being purchased or internally generated, it is important that companies provide this information to users of financial reports. Business and shareholders could not accept the fact that goodwill should be amortized or impairment losses incurred, thus lowering the business’ profits. Also, at the same time expenses have been incurred in trying to maintain or improve the value of goodwill. In fact
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Unformatted text preview: the calculation of the value of goodwill is outlined in the current standards: (1) Goodwill, once impaired, can never be restored. (2) Impairment is calculated by forecasting which creates uncertainty and risk, thus unreliable. (3) Goodwill is allocated to each CGU when using the impairment method. (4) Impossible to account for goodwill within the context of the historical cost system. The ‘double account’ concept divides the conventional balance sheet into two sections dealing with both assets and liabilities. By adopting this concept, the MCS has modified it to produce useful and integrated information concerning for both purchased and internally generated goodwill only....
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