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?

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