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.


Anonymous said...

have u done audit planning recently? i would appreciate if you could share some of your precious experience! ;)

Anonymous said...

Well under US GAAP, if the excess paid was identified to be specific to a customer base / list, an intangible asset would have been capitalized as such.

Then, during subsequent years, that customer base / list would be considered for impairment at each reporting period. In the event that the direction of the business had changed (and as such the customer base no longer usable) then the impairment would be made to the corresponding asset.

Under US GAAP, I wouldn't think you would have goodwill since this is usually only the remainder of purchase price over the value of all *identifiable* assets, which would include the intangible asset of a customer base.

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