Wednesday, May 13, 2009

#79 Goodwill written off ( Part II)

In previous Goodwill written off post, we posted a question for our reader whether the goodwill should be written off after the Company and its subsidiaries has switched its businesses.

Goodwill is considered the premium the Company pay , during acquisition, in anticipation of future economic benefits. In the above case, Company A paid higher premium for Company B's existing customer base in computer hardware industry.

Company A and Company B have shifted its focus to computer software business, the goodwill the Company A paid for no longer exist. As such, the goodwill should be written off accordingly! There's no probable ground that the future economic benefit is going to flow into the Group.

Wednesday, May 6, 2009

#78 Goodwill written off

Company A acquired Company B in 2006. Net asset of Company B amounted to S$3mil, while Company A acquired the Company B with a purchase consideration of S$4mil. Management explained that the S$1mil excess ( which was subsequently considered as goodwill) is attributable to the goodwill paid to shareholder of Company B for existing customer base of Company B in computer hardware industry.

Year-over-year, Company B has shifted its focus to computer software industry. For the year ended 31 Dec 2008, Company B's ( which is a subsidiary of Company A) earning is at break-even stage. It has no more businesses in computer software, neither nor Company A.

What has happened to the goodwill Company A previously paid for ? Should it be written off even if Company B is not in loss-making position?