Goodwill presented as Other Assets The issue of goodwill has been debated in many countries throughout the world.

Despite numerous efforts and the existence of accounting standards and exposure drafts issued by various professional bodies internationally, there is yet to be a universally accepted accounting treatment for goodwill. The opinion on this subject differs and changes frequently. The dichotomy of having to preserve prescribed recognition criteria on the one hand and the need to report useful information on the other has led to the many controversial issues debated on the subject of goodwill. Goodwill has also been debated before by certain authors on where it should be presented in the balance sheet or the statement of financial position. Some authors argued that it should be presented as an asset. Johnson and Petrone mentioned that to ensure that the accounting standards that it issues are cohesive and consistent, the Board looks to its conceptual framework for guidance. Assets are defined in FASB Concepts Statement No. 6, Elements of Financial Statements, as probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. The Board concluded that goodwill provides future economic benefits because it possesses the capacityin conjunction with other assetsto produce cash flows, and also concluded that the business combination is the past transaction that results in control of those benefits by the entity. In reaching those conclusions, the Board noted that Concepts Statement 6 specifically indicates that exchangeability is not a necessary characteristic of assets. The Board agreed that incurrence of costs does not necessarily result in acquisition of assets but observed that those costs provide evidence that assets may have been acquired. Another argument is that goodwill should be eliminated because it is not an asset. Proponents of this view argue that goodwill should be written off immediately upon acquisition, with the write-off bypassing the income statement by being taken either directly to equity or to other comprehensive income (OCI), either of which investors might ignore. Alternatively, some argue that the write-off could be reported in the income statement as a one-time charge, which investors also might ignore or weigh less heavily than other income statement items. According to this argument, goodwill does not meet the definition of an asset because it cannot be sold separately from the acquired business. Moreover, recording goodwill as an asset assumes that because a cost was incurred, an asset must have been acquired, thereby mistakenly equating costs with assets. As it is being practiced nowadays, it is clearly an asset. But what is goodwill that it had many controversial issues? Valix, Peralta and Valix (2009) states that 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 list of regular customers. By

this definition, the managers and the strategic team are responsible so that the company may obtain such goodwill. The conceptual framework for the preparation and presentation of goodwill is under the International Financial Reporting Standards (IFRS) 3 on Business Combination and under International Accounting Standards (IAS) 38 as part or Intangible Assets. Goodwill is currently being presented as part of intangible assets. Only purchased goodwill is recognized because when acquiring a business, not only the identifiable assets are paid for but also the creation and maintenance of durable customer and supplier relationships, high quality of goods and services, and high quality and conduct of management and employees of the acquired company.. Deloitte Development LLC (2007) indicated that goodwill is measured at the excess of the cost of an acquired entity over the net of the amounts assigned to the asset acquired and liabilities assumed. According to Valix et al. (2009) developed goodwill or internal goodwill is that goodwill which is generated internally because of good name, capable staff and personnel, superior quality of products, favorable location and high credit standing of the entity itself. Such goodwill is not recorded because no objective transaction on which the goodwill can be based. The measurement of goodwill in this case may prove to be difficult and a great deal of subjectivity and misrepresentation might occur. So why present goodwill as an intangible asset when the International Accounting Standards 38 by the Deloitte Global Services Limited (2013) defines intangible assets as an identifiable non-monetary asset without physical substance. An asset which is a resource and is controlled by the entity as a result of past events and from which future economic benefits are expected. Goodwill, like the intangible assets is a non-monetary asset without physical substance and is a result of past events but it is also stressed out in the definition that a critical attribute of an intangible asset is it being identifiable whereas goodwill is unidentifiable asset. Identifiability according to IAS 38 is when an asset is separable or capable of being separated and sold, transferred, licensed, rented or exchanged, either individually or together with related contract. Goodwill cannot be separated or sold individually because it is linked to the company itself. Also, goodwill is not capable of being licensed, rented, or exchange individually for the reason that it is only recognized and recorded when acquiring a company that exceeds its fair value. Moreover, goodwill does not involve in an individual contracts since it involves the whole company regarding an acquisition of an entity. Another definition of identifiability of an intangible asset under IAS 38 by the Deloitte Global Services Limited (2013) is when it arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. Goodwill being unidentifiable does

not connive with this definition because goodwill neither arises from legal rights nor it could be defended, extended, or being trialed in court. For example, goodwill if it deteriorates or if company B within the same industry as company A established their goodwill on the customers of company A, it is not possible that the issue between these two companies as to getting loyal customers will be resolve in court. The only solution of company A is it should change or innovate its products and services to regain the lost goodwill from their customers. For this reason, goodwill is tested annually for its impairment. The recognition of a purchased intangible asset requires an entity to demonstrate that the item meets the definition and recognition criteria set out in IAS 38: Rolfe illustrated that an intangible asset should be recognized if and only if: it is probable that the future economic benefits from the asset will flow to the entity and the cost of the asset can be measured reliably. The first criteria could be seen in the characteristics of goodwill. Henderson and Peirson (ninth edition) mentioned that if it is assumed that the fair value of an asset is roughly equal to the present value of its expected future economic benefits, then goodwill can be interpreted as the present value of expected future economic benefits from unidentifiable intangible asset. Goodwill is thus a cost incurred in anticipation of probable future economic benefits. This could be the interpretation why goodwill is being presented as part of intangible asset. Whereas the second criteria is not applicable to goodwill because the cost or valuation of goodwill cannot be measured reliably in the sense that goodwill is just the residual value of the consideration transferred and the fair value of the net assets acquired in a business combination. Henderson and Peirson (ninth edition) indicated that if an acquired entity was shown as a single asset in the buyers statement of financial position, then accountants task would be easier, but in practice the separate assets of the acquired entity are shown in the statement of financial position. Accountants allocated the total purchase price to the acquired asset so that each is shown at its fair value. Any amount that is not allocated is called goodwill. Also, Johnson and Petrone cited that the Board acknowledged that measuring goodwill subsequent to its acquisition is more difficult than measuring many other assets. Goodwill must be measured initially as a residual, the excess of the purchase price of the target company over the fair value of its identifiable net assets. Because a similar residual measure usually is not available subsequent to the date of acquisition, goodwill is not as readily measurable as, say, assets that are exchangeable and for which there are observable and active markets. As to other research and documents, goodwill is always separated from other intangible assets mainly because there is a difference between the two assets. Like in the powerpoint presentation of Schneider (2002) illustrated that goodwill should be accounted for and reported separately from other intangibles (slide 8). Also in

Earnst and Young (2012) illustrated in ASC 350 requires that the aggregate amount of goodwill be presented as a separate line item in the balance sheet. In deliberating Statement 142, the FASB concluded that goodwill was sufficiently different from other assets to require that it be displayed separately on the balance sheet. The issue of goodwill has been a controversial debate for many years. Despite numerous efforts made, there still does not exist a generally accepted definition of goodwill around the world. In spite of the efforts of FASB and IASB there is yet no universally accepted accounting treatment. The article confirms that goodwill treatment will remain a controversial debate between academics, financial report preparers and auditors also in the future. Since goodwill does not really meet the criteria for the recognition of the other assets in the minimum line item and under their standards; it is to be concluded that goodwill shall be presented as Other Assets in the Statement of Financial Position.

Works cited Valix, Conrado T., Peralta, Jose F. and Valix, Christian Aris M.; Financial Accounting Volume One, 2009 edition. Deloitte Development LLC (2007); Accounting for business Combinations, Goodwill, and Other Intangible Assets. A roadmap to applying Statements 141 and 142. Section 7.

Deloitte Global Services Limited (2013); IAS 38 Intangible Assets; retrieved from http://www.iasplus.com/en/standards/ias/ias38

Henderson, Scott and Peirson, Graham; Financial Accounting Ninth Edition Rolfe, Tom; Financial Accounting and Tax Principles; CIMAs Official Learning System; Managerial Level

L. Todd Johnson and Kimberley R. Petrone; L. Todd Johnson is a senior project manager at the FASB. Kimberley R. Petrone is a project manager at the FASB. Retrieved from
http://www.learningace.com/doc/1250950/1027b7a2b9f163e1cc6f74925d33bd48/goodwill

Schneider, Gabriela H., CMA; Grant MacEwan College; Intermediate Accounting Sixth Canadian Edition; KIESO, WEYGANDT, WARFIELD, IRVINE, SILVESTER, YOUNG, WIECEK Earnst and Young ; Intangibles Goodwill and other Revised December 2012; Financial reporting developments A comprehensive Guide

Goodwill presented as Other Assets

Regie Sharry A. Panis Saint Louis University

September 2013

Personal Description: female, 21, single Mission: To utilize the gifts that God has given me, be a blessing to others, to sing praise to the Lord and glorify God with everything I do Vision: walk in the path God has given me, listen and obey my parents, being careful of what I say, think or do, praying and asking Gods direction for every decision to make, being a real friend, studying hard Core Values: loyalty, simplicity, honesty, respect for others, friendship, spiritual being, health, family Gifs/Talents: Singing, cooking, analyzing, dancing, painting Occupation: Student