“WHY NOT ELIMINATE GOODWILL?”
The Balance Sheet is one of the financial statements necessary to help different kinds of individuals – owners of enterprises, management of companies, analysts, creditors, inventors in making business decisions. It is a statement that tells about the financial position of the company. It encompasses the three main elements of the accounting equation – the assets, the liabilities and owner’s equity.
The assets are resources controlled by the enterprise as a result of past event which will give rise to future benefits for the company. And one of the good examples of assets is the intangible assets.
Intangible assets are identifiable, non-monetary asset without physical substance. It comprises of patents, licenses, contracts, copyrights and goodwill. The first four are identifiable intangible assets because they could be identified separately from the rest of the other assets while on the other hand, goodwill is not.
Goodwill is an unidentifiable intangible asset for the reason that it is embedded or included in the entity itself. Usually, goodwill is mostly obtained through business combinations, Meaning as you purchase an entity or a business, it is there where you can compute the goodwill obtained. It is computed as the difference between the purchase price and the net assets of the company stated in fair value or what we often call as the indirect method or the residual value method. ANALYSIS
Accounting for goodwill is one of the gray areas in accounting. Because goodwill is an unidentifiable and indefinite intangible asset, the council and mostly the accountants are having a difficult time on how we will account for it transparently. Some are now thinking that we should eliminate goodwill in our financial statements.
The arguments behind goodwill are these: (1) It should be ignored or eliminated because they are not an asset and cannot be measured reliably, (2) Goodwill...