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Review - Unidentifiable Intangible Asset
Review - Unidentifiable Intangible Asset
Goodwill
Goodwill
Goodwill arises when earnings exceed normal earnings by reason of
good name, capable staff and personnel, high credit standing,
reputation for fair dealings, reputation for superior products
favorable location and a list of regular customers.
◦ Goodwill that is generated
Developed
internally therefore is not
Goodwill
recorded.
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◦ Goodwill that has been paid for.
Purchased It arises when a business is
Goodwill purchased. Thus, it is recognized
as an asset.
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1. Residual Approach
◦ Goodwill is measured by comparing the
purchase price for the entity with the
net tangible and identifiable assets.
Measurement of Net assets should be measured at fair
Goodwill value.
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Net Assets excluding goodwill 7,500,000
Normal rate of return 12%
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Average earnings 1,000,000
Normal earnings
(7,500,000 x .12) (900,000)
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The goodwill is measured at the average excess
earnings capitalized at 25%
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The goodwill is measured at average earnings
capitalized at 10%
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If the average excess earnings of P100,000 are
expected to received annually in 5 years, the
goodwill assuming a discount rate of 12%
Goodwill 360,500
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◦ If the purchase price or consideration
transferred for the entity is less than the net
fair value of the identifiable assets acquried
and liabilities assumed, the difference is
Negative negative goodwill.
Goodwill
◦ PFRS 3, paragraph 34 provides that such
negative goodwill is recognized in profit or loss
as “gain on bargain purchase”
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