It is controversial whether goodwill acquired in business combination can be recognised properly under current accounting standards. Some researchers criticise that impairment loss only approach under current accounting standards is subjective and this approach may lead to untimely disclosure of impairment loss. However, I believe in comparison with other approaches impairment loss only approach can better reflect the resources and the performance of the company in business combination.
AASB 3 Appendix A defines goodwill as “an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized”. AASB3 para.32 requires goodwill acquired in business combination should be initially measured as the excess amount of the purchase …show more content…
Estimates are used to measure recoverable amounts of cash-generating units containing goodwill (AASB136 para134). For example, Slater &Golden commits an impairment loss of 814.2 million half year after it acquired Quindell at the price of $1.3 billion (Shapiro J.2016). The huge goodwill impairment is a result of a lower expectations of groups’ future financial performance and the changes in small claim personal injury laws(Shapiro J. 2016). Goodwill impairment may accelerate its losses so company will prefer to reduce its losses by not recognizing goodwill impairment until it has to do so. Therefore, impairment losses are often recognised in consolidated financial statements after a crisis when the financial markets have already taken a subsidiary’s impairment losses into account.
Given the drawbacks of impairment test only approach, some researches provide other alternatives to improve the recogination of goodwill, such as discernible-element approach, direct write-off’ approach and the amortisation and impairment approach(EFRAG,
AASB 3 Appendix A defines goodwill as “an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized”. AASB3 para.32 requires goodwill acquired in business combination should be initially measured as the excess amount of the purchase …show more content…
Estimates are used to measure recoverable amounts of cash-generating units containing goodwill (AASB136 para134). For example, Slater &Golden commits an impairment loss of 814.2 million half year after it acquired Quindell at the price of $1.3 billion (Shapiro J.2016). The huge goodwill impairment is a result of a lower expectations of groups’ future financial performance and the changes in small claim personal injury laws(Shapiro J. 2016). Goodwill impairment may accelerate its losses so company will prefer to reduce its losses by not recognizing goodwill impairment until it has to do so. Therefore, impairment losses are often recognised in consolidated financial statements after a crisis when the financial markets have already taken a subsidiary’s impairment losses into account.
Given the drawbacks of impairment test only approach, some researches provide other alternatives to improve the recogination of goodwill, such as discernible-element approach, direct write-off’ approach and the amortisation and impairment approach(EFRAG,