FA3 Assignment
Impacts of Goodwill and impairment project??
ADHM Pty Ltd
Prepared by: Gurkirat Singh
Introduction
This report has been prepared for the ADHM Pty Ltd to introduce the impacts of goodwill and impairment project on a company. Also to advise the approach that company can adapt. The purpose of Goodwill and Impairment project is to simplify the impairment testing model. This memo focuses on Subsequent Accounting for goodwill which is one of the objectives of this goodwill and Impairment project. The main objective of looking at subsequent accounting for goodwill is to identify how the costs of the current accounting can be reduced without losing the information provided by the impairment-only approach under …show more content…
The impairment loss recognizes when goodwill drop below the carrying amount (ASBJ 2017, p5). Whereas currently Under AASB 136 impairment-only approach first identify the impairment loss than amortize the goodwill. Since goodwill amortizes before recognition of impairment loss it will also recognize expense earlier than current impairment only model.
According to Agenda paper 18A, participants have favoured the Amortization approach and the major reason is that approach will replace the acquired goodwill with internally generated goodwill over time only if Acquired goodwill will not be amortized over subsequent periods. Otherwise, this would be complicated to show results related to an acquisition in financial statements (EFRAG 2014).
The one of the major Weakness of Amortization and impairment model is identifying the period that goodwill should be amortized. Nevertheless, if a Useful life of amortizing goodwill cannot be identified or predicted accurately still it's much simpler and easier approach to implement into real practice rather than Impairment- only approach (EFRAG 2014).
Advise and justify the suggested …show more content…
This paper will illustrate facts from your company under current and possible approaches of Goodwill. The possible approaches discussed are amortization approach and direct write off method.
Under impairment-only approach difference between the carrying amount and recoverable amount of assets is considered an impairment loss. Then, Impairment loss allocated to goodwill till reaches zero and after allocated to assets on a pro-rata basis. If Clients Company uses the impairment only approach then they have to conduct impairment test on goodwill annually basis which has not been impaired since acquisition which was 5 years ago. For example, if carrying amount of assets is $30m and a recoverable amount is $20m and an impairment loss will $10m. Under Impairment only approach a company should write off the goodwill of $10m.
Under the Amortization and impairment approach, goodwill will be write off before the impairment loss and then recognize as an expense. For example, according to facts company has $10m acquired goodwill due to the purchase of subsidiary. This goodwill will be amortized and recognized as an expense. The impairment loss will recognize when carrying amount of goodwill will decrease from an actual value of goodwill. This approach is more appropriate than impairment
Impacts of Goodwill and impairment project??
ADHM Pty Ltd
Prepared by: Gurkirat Singh
Introduction
This report has been prepared for the ADHM Pty Ltd to introduce the impacts of goodwill and impairment project on a company. Also to advise the approach that company can adapt. The purpose of Goodwill and Impairment project is to simplify the impairment testing model. This memo focuses on Subsequent Accounting for goodwill which is one of the objectives of this goodwill and Impairment project. The main objective of looking at subsequent accounting for goodwill is to identify how the costs of the current accounting can be reduced without losing the information provided by the impairment-only approach under …show more content…
The impairment loss recognizes when goodwill drop below the carrying amount (ASBJ 2017, p5). Whereas currently Under AASB 136 impairment-only approach first identify the impairment loss than amortize the goodwill. Since goodwill amortizes before recognition of impairment loss it will also recognize expense earlier than current impairment only model.
According to Agenda paper 18A, participants have favoured the Amortization approach and the major reason is that approach will replace the acquired goodwill with internally generated goodwill over time only if Acquired goodwill will not be amortized over subsequent periods. Otherwise, this would be complicated to show results related to an acquisition in financial statements (EFRAG 2014).
The one of the major Weakness of Amortization and impairment model is identifying the period that goodwill should be amortized. Nevertheless, if a Useful life of amortizing goodwill cannot be identified or predicted accurately still it's much simpler and easier approach to implement into real practice rather than Impairment- only approach (EFRAG 2014).
Advise and justify the suggested …show more content…
This paper will illustrate facts from your company under current and possible approaches of Goodwill. The possible approaches discussed are amortization approach and direct write off method.
Under impairment-only approach difference between the carrying amount and recoverable amount of assets is considered an impairment loss. Then, Impairment loss allocated to goodwill till reaches zero and after allocated to assets on a pro-rata basis. If Clients Company uses the impairment only approach then they have to conduct impairment test on goodwill annually basis which has not been impaired since acquisition which was 5 years ago. For example, if carrying amount of assets is $30m and a recoverable amount is $20m and an impairment loss will $10m. Under Impairment only approach a company should write off the goodwill of $10m.
Under the Amortization and impairment approach, goodwill will be write off before the impairment loss and then recognize as an expense. For example, according to facts company has $10m acquired goodwill due to the purchase of subsidiary. This goodwill will be amortized and recognized as an expense. The impairment loss will recognize when carrying amount of goodwill will decrease from an actual value of goodwill. This approach is more appropriate than impairment