BA Thesis PDF

SRH University of Applied Sciences Berlin
«Business Administration»
Bachelor Thesis on
The treatment of Goodwill under HGB and IFRS
submitted by
Maximilian Kahlfeldt
Matriculation No.: 26200110
Hedwigstraße 1a, 12159 Berlin
E-mail: maximilian.kahlfeldt@googlemail.com
1st Supervisor: Ian Towers
Processing time: Eight weeks
Date of Submission: 28.06.2013

Affidavit
Last Name: Kahlfeldt

First Name: Maximilian
Date of Birth: 22.02.1989
Matriculation No.: 26200110
I declare under penalty of perjury that I have produced this

Bachelor Thesis
...............................................................................................................
(please enter type of paper or thesis)
about
The treatment of Goodwill under HGB and IFRS
..............................................................................................................
(please enter topic)
independently, without unauthorized assistance of third parties and

without the use of any other than the specified resources. Thoughts and
material acquired directly or in- directly from other sources are identified
by indicating the references.
The work has not been submitted previously in the same or in a similar
version to any other examining body, and was not previously part of a
course requirement or any other examination.
I am aware that a false affidavit will have legal consequences.
Berlin, 28.06.2013
....................................................... ..................................................
Place, Date Signature
Table of Content
FIGURES .............................................................................................................................................. IV

LIST OF ABBREVIATIONS ............................................................................................................. V
ABSTRACT ......................................................................................................................................... VI
1 INTRODUCTION TO GOODWILL ........................................................................................... 1
1.1 TYPES OF GOODWILL – DEFINING THE TERM .............................................................................. 4
1.1.1 Purchased Goodwill ...................................................................................................................... 4
1.1.2 Non-purchased Goodwill ........................................................................................................... 5
1.1.3 Negative Goodwill .......................................................................................................................... 6
1.2 IMPORTANCE OF GOODWILL ............................................................................................................... 7
2 GOODWILL RECOGNITION ACCORDING TO HGB .................................................... 10
2.1 PURPOSE OF THE GERMAN COMMERCIAL CODE (HGB) .................................................... 11
2.2 ACCOUNTING LAW MODERNIZATION ACT .................................................................................. 12
2.3 APPROACH TO “GESCHÄFTS- ODER FIRMENWERT” .............................................................. 13
2.3.1 Initial Consolidation .................................................................................................................... 14
2.3.2 Models of Mergers & Acquisitions ..................................................................................... 15
2.3.3 Subsequent accounting for Goodwill ............................................................................... 16
2.3.4 Deconsolidation ............................................................................................................................ 18
3 GOODWILL RECOGNITION ACCORDING TO IFRS ................................................... 19
3.1 PURPOSE OF THE INTERNATIONAL FINANCIAL REPORTING STANDARDS ..................... 20
3.2 APPROACH TO GOODWILL ................................................................................................................ 21
3.2.1 Initial consolidation ..................................................................................................................... 21
3.2.2 Purchase Price Allocation ...................................................................................................... 23
3.3 SUBSEQUENT ACCOUNTING FOR GOODWILL ............................................................................ 24
3.3.1 Determination of Useful Life ................................................................................................. 24
3.3.2 Recoverable amount ................................................................................................................. 25
3.3.3 Carrying amount .......................................................................................................................... 26
3.3.4 Impairment Test ........................................................................................................................... 26
3.3.5 Recognition of an impairment loss .................................................................................... 28
4 COMPARING AND CONTRASTING THE TWO APPROACHES .............................. 29
5 GOODWILL IN DAX30 COMPANIES ................................................................................. 32
5.1 STATE OF EMPIRICAL RESEARCH .................................................................................................. 32
5.2 EMPIRICAL RESEARCH ....................................................................................................................... 35
5.2.1 Data basis ........................................................................................................................................ 35
5.2.2 Overview of impairments from 2000 until 2011 ......................................................... 36
5.2.3 Implied useful life ......................................................................................................................... 37
5.2.4 Balance Sheet Analysis ........................................................................................................... 40
5.3 FINANCIAL PLANNING UNDER HGB AND IFRS .................................................................................. 43
6 CONCLUDING REMARKS AND LOOK AHEAD ............................................................ 46
7 BIBLIOGRAPHY ........................................................................................................................ 49
III

Figures
FIGURE 1: PURCHASED GOODWILL ...................................................................................................................................... 5

FIGURE 2: BALANCE SHEET – GOODWILL RATIO ............................................................................................................ 8
FIGURE 3: GOODWILL IMPAIRMENT ACCORDING TO HGB ......................................................................................... 17
FIGURE 4: “HOUSE OF IFRS” .............................................................................................................................................. 19
FIGURE 5: PURCHASE PRICE ALLOCATION ..................................................................................................................... 23
FIGURE 6: CALCULATION OF RECOVERABLE AMOUNT ................................................................................................ 25
FIGURE 7: AMOUNT OF IMPAIRMENT ................................................................................................................................. 26
FIGURE 8: INDICATIONS OF IMPAIRMENT ......................................................................................................................... 27
FIGURE 9: CONTRASTING THE GOODWILL TREATMENT ............................................................................................. 29
FIGURE 10: COMPARISON OF SUBSEQUENT ACCOUNTING ....................................................................................... 30
FIGURE 11: OVERVIEW OF IMPAIRMENT S FROM 2000 – 2011 .............................................................................. 36
FIGURE 12: IMPLIED USEFUL LIFE ....................................................................................................................................... 37
FIGURE 13: IMPLIED USEFUL LIFE DAX30 ...................................................................................................................... 38
FIGURE 14: GOODWILL – SHAREHOLDER EQUITY RATIO ......................................................................................... 41
FIGURE 15: GOODWILL – SHAREHOLDER EQUITY RATIO IN DAX30 .................................................................... 41
IV

List of abbreviations
§ Paragraph
BilMoG Bilanzmodernisierungsgesetz (Accounting Law
Modernization Act)
CGU Cash Generating Unit
DAX Deutscher Aktien Index (German share index)
DRSC Deutsches Rechnungslegungs Standards
Committee (German Accounting Standarsd
Committee)
EStG Einkommenssteuergesetz (Income tax act)
ff. Following
HGB Handelsgesetzbuch (German Commercial Code)
IAS International Accounting Standards
IASB International Accounting Standards Board
IDW Institut der Wirtschaftsprüfer (Institute of German
Auditors)
IFRS International Financial Reporting Standards
M&A Mergers and Acquisitions
US GAAP United States Generally Accepted Accounting
Principles
SFAS Statement of Financial Accounting Standards
V

Abstract
The economic reality is shaped by constant transitions. Current changes in the

global economies are being driven by the transformation from an industrial
society to an information- and knowledge-oriented society. This process is
being promoted by the ongoing globalization and an increasing importance of
capital markets. These changes demand constant adjustments of the financial
reporting legislation since it is their task to portray a picture of businesses,
which reflects the reality in the best way.
Up to now the presentation of economic issues is being regulated by different
national and international institutions, where a tendency towards international
regulations such as the IFRS can be seen.
Subject of this paper is the determination and treatment of Goodwill according

to German Commercial Code (HGB) as well as the International Financial
Reporting Standard (IFRS) as well as their implications for practical appliance. It
will be shown that the differences have a significant impact on the financial
statements and the financial planning certainty for investors. With the help of
the annual financial statements of the companies listed in the German DAX30
index it will be examined if the valuation and treatment of the Goodwill under
HGB ensures a more sustainable financial planning certainty than the
international legislation, as anticipated.
The argumentation will be supported by both literature reviews and the analysis
of actual market data.
Keywords: Goodwill, HGB, IFRS, Negative Goodwill, Dax30, Useful life,

Impairment-only approach, financial planning
VI

1 Introduction to Goodwill

Since a few years the broader public is increasingly aware of the relevance and
importance of information from capital markets. Accounting scandals make
headlines worldwide causing disruptions on the stock exchanges1.
The ramifications of the financial crisis of 2008 made it clear to every citizen that
banks and the capital markets have a direct and devastating influence on the
global economy. The events of the crisis raised the awareness of the scope of
missing or insufficient legislation. The most extensive financial crisis ever has
developed to a global economic crisis, which wiped out values and lead to
enormous depreciations for companies. The market capitalization of many firms
has been significantly reduced. Based on these developments the discussions
about financial accounting regulations like the fair-value estimation were being
augmented. A political discussion about the “correct” financial reporting was
initiated.2
Times like these call for reliable and consistent regulations and norms of
financial reporting. Reliable financial data is needed to be able to compute the
risks involved when investing in capital markets since these markets have a
significant impact on the economical situations of individuals, companies,
regions and even countries. For that reason it is essential not only for the
company and their shareholders but also for creditors and the staff, according to
which regulations a record is recognized in the accounts. The accounting
departments are increasingly facing new tasks especially in connection with
international financial accounting regulations due to an increase of companies’
external growth through international mergers and acquisitions.3

1
Voigt, K. (2009)
2
Bertmoneu, J., 2011, p.4
3
Beugelsdijk, S., et al., 2013, p. 408
1

In the article called “Fair Valuation, Market Responses, And Accounting

Conservatism” written by Petruska and Gulraze and published in The Journal of
Applied Business Research, the purpose of presenting financial data is
explained as followed:
“The purpose of financial reporting is to provide not only reliable information

about firm profitability, but also to report timely and value relevant information
that users of financial statements can use in their capital market assessments.”4
Hereby the terms “reliable information” and “value relevant information” have to
be emphasized. The financial information published has to conclude in the
truest possible reflection of the assets, finances and income to achieve a true
and fair view of the company´s situation. 5 This requirement is part of the
German Commercial Code (Handelsgesetzbuch, HGB) as well as the
International Financial Reporting Standards (IFRS), although they are described
and treated differently in the legal texts.
For the purpose of this paper, these two accounting regulations have been
chosen for the following reasons: On the one hand, the IRFS is being used in
128 jurisdictions6 and therefore is of the highest relevance around the globe. On
the other hand, a modification of the German Commercial Code in 2008 lead to
several significant changes of the legal texts with the purpose of minimizing the
differences between German and international accounting law. An
approximation in accounting for Goodwill has not been realized. The HGB
represents the most used and therefore most important accounting regulation in
Germany, as will be explained later.
These facts and the existing differences build the reason for the relevance of
this topic. Other national or international accounting regulations like the US-
GAAP have been left out due to their lack of importance on the global markets
and their similarities to HGB and IFRS.

4
Petruska, K., Gulraze, W., 2013, p. 795
5
§§ 264, section 2; 297, section 2 and IAS 1.13
6
Deloitte Global Services Limited, 2013, Use of IFRS by jurisdiction
2

The correct valuation and presentation of some accounts on the balance sheet
is subject to higher requirements than others due to their nature. In general it is
more difficult to truly and correctly present the intangible assets since, as the
name already indicates, they are intangible and therefore cannot be valued
directly at market price for example. This problem becomes even more visible
when a company´s positive market reputation and future prospects have to be
put in numbers. These competitive advantages put into numbers are called
Goodwill.
Goodwill represents a form of an intangible asset, that has reached a whole

new level of importance. In the past, companies were rather focused of the
production of products and they listed more tangible than intangible assets on
their balance sheets. Manuel Castells describes this movement as a shift from
industrialism to informationalism. 7 This shift resulted in a higher rate of
intangible assets. The globalization added another factor the increasing
importance, since it is generally easier to get information about a certain
company and buy or merge with it. An emphasis on the contributors to the
increasing importance is being given at a later stage.
First the term Goodwill will be explained and the different types will be shown.
Then the balance position Goodwill is going to be evaluated and explained from
different perspectives and legal points of view. The relevant approaches are
being examined and the exceptional importance of the topic will be underlined.
Subsequently an analysis of accounting for Goodwill on the example of the

German benchmark index DAX30 will be undertaken. Here the implications for
investors as well as the role of Goodwill on financial key performance indicators
are being presented.
The paper closes with shortly summarizing the findings and providing a look in
the future of the financial regulations connected to Goodwill.

7
Castells, M., 2010, p. 38
3

1.1 Types of Goodwill – defining the term
Goodwill is considered as an intangible asset and is being presented on the

assets (left) side of the balance sheet. The intangible assets themself are being
divided into that ones, that “have autonomous relevance and are thus
identifiable […] and [those] intangible assets that cannot be identified and are
included in the value of goodwill and sometimes in the of going concern value.”8
Goodwill reflects the business´s know-how, image, human resources and the
relationship to their customers and suppliers. In addition, it reflects the access
to markets (sales and buying markets), operational structure, location
advantages, publicity and the company´s profitability.9 Those are attributes that
will lead to future economic benefits.10 Furthermore it can be explained as the
added value of the whole company compared to the sum of the single assets
and liabilities.
There are generally two different types of Goodwill: The purchased and the non-
purchased Goodwill. The two types will be explained and contrasted in the
following. In addition there is the phenomenon of a negative Goodwill which is
also part of the next chapter.
1.1.1 Purchased Goodwill
The analysis of purchased Goodwill is crucial for the transparency and the
correctness of the presentation of assets in financial reporting. Purchased
Goodwill cannot be found in the financial statements of individual entities, but
rather on the balance sheets of affiliated groups, which are the result of
business combinations (a merger or acquisition).

8
Grosu, V., et al., 2012, p.10709
9
Küting, K., et al., 2013, note to § 255 HGB
10
Grosu, V., et al., 2012, p.10709
4

The purchased Goodwill is calculated as follows:11
P. Goodwill = Market Value of the Entity – Market Value of Identifiable Net Assets
or in different words:
P. Goodwill = Total Purchase Price – Sum of Assets and Liabilities

Figure 1: Purchased Goodwill
To picture this in a practical way, a standard example is frequently used:

A software company has assets of €1.5 million and liabilities of €500.000. That
means it has net assets of €1 million. If another company buys this software
company for €10 million it would add €1.5 million to the assets and €500.000 to
the liabilities. The remaining €9 million have to be accounted for as Goodwill
under the intangible assets position.
In this case Goodwill is determined by the future maintainability of profits.
A private company cannot account for Goodwill since the value is only
determined after an acquisition. A publicly traded company on the other hand is
constantly subject to market valuation, which means that their Goodwill is
always clearly identifiable.
1.1.2 Non-purchased Goodwill
This type of Goodwill can be considered as the “pure Goodwill”. As stated

above, it is the additional non-financial value of a business that a company has
created on it´s own over a period of time. This not numerical presentable value
can consist of: Public image product quality, credit worthiness, managerial
efficiency, brand value and so on. It reflects the added value of the whole

11
§ 246 HGB, § 301 HGB and § 312 HGB; IFRS 3
5

company compared to just the sum of the assets and liabilities (synergies for
example). The term non-purchased Goodwill itself describes the meaning very
well, just as the other names do: Raised Goodwill and Inherent Goodwill.
The non-purchased Goodwill, in contrast to the purchased Goodwill, cannot be

presented within the balance sheet. 12 The reason for that is, that it is not
measureable in a reliable way and is created by one company itself. If there
was the possibility of posting an asset that has been created and measured all
within the company on the balance sheet, this would lead to discretionary and
not trustable financial figures. This is the reason why only Goodwill that results
from a business transaction is allowed to appear on the asset side of the
balance sheet.
1.1.3 Negative Goodwill
Negative Goodwill is based on the concept of Goodwill and consequently

represents a situation where a company is being sold for less than the sum of
the total assets. This phenomenon is rarely observable but for the
completeness of this paper it is being mentioned.
If the difference between purchase price and sum of net assets is negative, “the
resulting gain is recognized as a bargain purchase in profit or loss.”13
This appearance reflects expected negative returns of the purchased company

and is in the accounting community referred to as a “Lucky Buy”.
An example for such an event was the Yinson Holdings Bhd. from Malaysia,
which bought Fred Olsen Production ASA, a Norwegian offshore petroleum
company, for a 0.7 price-to-book valuation. This means that Yinson paid a price,
which is equivalent to just 70% of the assets of the company being taken over.

12
§ 248 HGB; IAS 38.48
13
IFRS 3.34-36
6

The reason for this was an expected negative future development of the
company as well as a result from the financial crisis, which hit the Scandinavian
industry very hard. Before the acquisition by Yinson Holdings Bhd, five out of
the eleven petroleum subsidiaries of Fred Olsen Production ASA were being
closed and three have been sold.14
The result from this transaction was that Yinson had to recognize the loss from
this transaction on its profit and loss statement.
1.2 Importance of Goodwill
The importance of Goodwill can be derived from the amount and value of
Mergers & Acquisitions (M&A) that take place, since Goodwill is the result of a
business combination.
The number of worldwide M&A deals rose from 19.127 in 2009 to 28.829 in
2012, which represents an increase of 51% within 3 years.15 The corresponding
value that has been traded during the same period rose significantly by 130%
from $1.117,7 billion in 2009 to $2.568,7 billion in 2012.16 In Europe the same
movement is observable, where the number of deals rose by 66% and the
corresponding value of traded companies rose by 274%.17
Since in almost every of those transactions the acquiring company paid more
than the sum of the assets less the liabilities, in all of the 28.820 deals there
was Goodwill involved.
For the purpose of presenting the importance of Goodwill, the German

Benchmark Share Index called DAX (Deutscher Aktienindex) has been chosen.
Here the biggest German publicly traded companies are being listed.

14
Loh, J., 2013, Yinson an O&G heavy-hitter in the making,
15
Wilmer Cutler Pickering Hale and Dorr, 2013, M&A Report 2013, p.2
16
17
7

The table in figure 2 shows the 30 members of the DAX in 201218, ranked by
the amount of Goodwill they carried in their balance sheet in 2011 in percent.
Balance Sheet/
19 20
Balance Sheet total Goodwill Goodwill
2011 2012 2011 2012 2011 2012
Fresenius Medical Care AG 15.059 16.844 7.095 8.650 47,1% 51,4%
Fresenius SE 30.798 26.510 12.773 15.114 41,5% 57,0%
SAP AG 23.227 26.835 8.711 13.274 37,5% 49,5%
HeidelbergCement AG 29.020 28.005 10.763 10.609 37,1% 37,9%
Henkel AG 18.487 19.525 6.712 6.661 36,3% 34,1%
Deutsche Post AG 38.408 34.121 10.973 10.922 28,6% 32,0%
Linde AG 28.915 33.477 7.868 10.620 27,2% 31,7%
Siemens AG 66.990 67.147 15.706 17.069 23,4% 25,4%
Continental AG 26.038 27.338 5.692 5.622 21,9% 20,6%
Merck KGaA 22.122 21.643 4.716 4.696 21,3% 21,7%
Bayer AG 52.765 51.336 9.160 9.293 17,4% 18,1%
RWE AG 92.656 88.202 13.593 13.545 14,7% 15,4%
Deutsche Telekom AG 122.542 107.942 17.158 14.440 14,0% 13,4%
Adidas AG 11.237 11.651 1.553 1.281 13,8% 11,0%
K+S AG 6.057 6.639 651 642 10,7% 9,7%
BASF SE 61.175 64.327 5.962 6.385 9,7% 9,9%
E.ON SE 152.872 140.426 14.083 13.440 9,2% 9,6%
Thyssen Krupp AG 43.603 38.284 3.378 3.550 7,7% 9,3%
Münchener Rück AG 77.525 80.509 3.511 3.505 4,5% 4,4%
Deutsche Lufthansa AG 18.014 20.747 613 615 3,4% 3,0%
Lanxess AG 6.878 7.519 167 174 2,4% 2,3%
Allianz SE 641.472 694.621 11.722 11.679 1,8% 1,7%
Volkswagen AG 253.769 309.644 4.334 23.938 1,7% 7,7%
Beiersdorf AG 5.275 5.575 51 66 1,0% 1,2%
Deutsche Börse AG 218.003 216.528 2.095 2.078 1,0% 1,0%
Deutsche Bank AG 2.164.103 2.012.329 10.973 9.297 0,5% 0,5%
Daimler AG 148.132 162.978 736 729 0,5% 0,4%
Infineon Technologies AG 6.555 6.341 21 21 0,3% 0,3%
Commerzbank AG 661.763 635.878 2.088 2.080 0,3% 0,3%
BMW AG 123.429 131.850 374 374 0,3% 0,3%
21
Figure 2: Balance Sheet – Goodwill Ratio
The table impressively displays that in 2011 the assets from 15 (50%) DAX
companies consisted of more than 10% Goodwill. At Fresenius Medical Care

18
Deutsche Börse AG – Anlegerportal boerse-frankfurt.de
19
In million €
20
In million €
21
Taken from respective Annual Financial Statements 2012
8

and Fresenius SE the Goodwill represents more than 40% of the assets in
2011. One year later even more than half of the assets were made up by
Goodwill, which reached more than €8.6 billion. This number is very high and
says that buildings, inventory, finished and unfinished products, cars, financial
assets and cash represented only half of the assets. Five from the 30
companies have more than 30% of their assets invested in Goodwill. On the
other hand, five companies have less than 1% of Goodwill in their assets in
2011, which means that they did not generate growth by acquiring other
companies or at least did not pay too much above the price of the sum of the
net assets.
The combined value of Goodwill in the German DAX is about €5.2 trillion (€5.1
trillion in 2012).
From this perspective there is no clear connection between the Balance Sheet/
Goodwill ratio and certain branches, legal structure, balance sheet size or
Goodwill amount perceptible. The only thing that stands out is the high ratio of
the two Fresenius corporations. The relative low balance sheet total, compared
to the other members, is set against amounts of Goodwill, which out values the
average Goodwill of the other firms.
Further analyses of the balance sheet and Goodwill will follow in chapter five.
The next two chapters are designed to give the reader an insight in the different
accounting regulations, their general purpose as well as their actual way to
recognize Goodwill.
9

2 Goodwill recognition according to HGB
The term “Geschäfts- oder Firmenwert”, which is the German expression for
Goodwill, was shaped by commercial law as well as German tax law. This can
be seen when comparing § 246 section 1 HGB with § 7 section 1 EStG
(Einkommenssteuergesetz, Income Tax Act) where the “Geschäfts- oder
Firmenwert” is being described as “an utilizable intangible assets of a temporary
nature”22. The term Goodwill is widely used in Germany and especially serves
as a catchphrase for the media. Despite the regular occurrence, the actual
economical meaning is clear to only the fewest.
The HGB in general is rather principal based, which means that it consists of
regulations for accounting, that are meant to meet as many business models as
possible.23 A concrete approach to specific contexts is not provided. In contrast
to IFRS it contains a limited amount of actual handling of estimates, valuation
and disclosure. For the practical application, interpretations of the law are
required. Since the HGB is a relatively old code and was developed over time,
there is a wide range of legal information, legal journals, comprehensive
jurisdictions as well as the texts of the Institute of the German Auditors (Institut
der Wirtschaftsprüfer, IDW) and communiqués of the German Accounting
Standards Committee (DRSC).
The German Commercial Code is a relative coherent set of rules and is
prioritized in a coordinated way. The strong continuity is a principal
characteristic of this code, which can be explained by the rather rare legal
updates.

22
§ 246 section 1 HGB and § 7 section 1 EStG
23
Baetge, J., Löw, E., Brüggemann, P., 2010, Chapter 1c, note 401 f
10

2.1 Purpose of the German Commercial Code (HGB)
When describing and evaluating accounting regulations, the purpose is of

crucial importance. Only by defining the purpose of the codification, an opinion
about the purposefulness can be formed. Even the purpose of accounting is
subject to controversial discussion, which leads to differentiations between the
purpose, goal, motive and reason of accounting.24
The purpose of the HGB is being laid on three pillars: The documentation and
information function as well as the obligation of accountability.
The first reason for an annual financial statement in terms of the commercial
law is the documentation function. Herein lies the basis for the idea of
accountancy. In the narrow sense of the word, the documentation function lies
in the perpetuation of evidence and serves as a preventive task.
The second reason is the information function, which does not only aim at
potential future investors but rather at the current owners to give them the ability
to keep track of their invested capital and the earned profits. This function is by
it´s nature more retrospective and is based on objectified principles.
This obligation of accountability is expected from a businessman from a legal
perspective and prevents from criminal consequences, especially when he is
entrusted with the capital of a third party. The importance of this obligation can
be seen in the fact that a businessman is not only obliged to keep the accounts
but also to prepare the annual financial statement, even if the part “delivering
information to external users” is not of any relevance (like a one-person
business without shareholders).

24
Pfitzer, N., Oser, P., Lauer, P., 2011, Chapter 2, note 1 f
11

The separate financial statement contains of three functions:
1. Documentation of assets, it´s utilization and the results of the utilization

2. Information for internal and external users about the assets, earnings
and financial position
3. Basis for tax assessment, dividends and withdrawal possibilities
Concluding it can be said, that the separate financial statement of the HGB,
follows an approach that is aiming at the protection of creditors and
shareholders as well as building the basis for tax and dividend payments.
The information function in this case does not deliver enough information to
capital markets to be the basis for professional investment decisions. For that
reason, the consolidated financial statement contains a few different regulations
to meet those requirements. This financial statement is a statement of a legally
not existing corporation.
2.2 Accounting Law Modernization Act
In December 1985 Germany accepted the European Accounting Directives Act.

It was developed by the members of the European Community and created the
standard of accounting in Europe.
The most extensive modification since 1985 were implemented on May 29,
2009 under the name “Bilanzmodernisierungsgesetz” (BilMoG, Accounting Law
Modernization Act). The overall goal of these modifications was to
internationalize the German accounting legislation, by increasing the quality of
information provided in financial statements.25 In addition, the intention was a
general deregulation and a harmonization of the differences in accounting
practices in Europe.

25
Haaker, A., 2010, p.3
12

The improvement of the information function was reached with a number of

modifications, from which these four present the most important ones:
1. Abolishment of several recognition and valuation options (e.g.

recognition option of depreciation according to prudent commercial
evaluations, § 253 section 4 HGB)
2. Elimination of distortive taxation influences (§ 254 HGB)
3. Approximation to international accounting law in terms of intangible
assets and its option to recognition (§ 248 section 2 HGB and § 253
section 2 HGB)
4. Changes in regulations for corporations and non-corporations
(elimination of §§ 279- 283 HGB)
These examples point at the goal of strengthening the information function

because building up hidden reserves is restricted significantly after BilMoG.
2.3 Approach to “Geschäfts- oder Firmenwert”
In the following, specifications of the German Commercial Code will be

presented keeping an emphasis on the accounting for Goodwill. This includes
the initial consolidation of an enterprise together with the different types of
business combinations, followed by the further treatment of Goodwill on the
balance sheet, called subsequent accounting for Goodwill. Finally it will be
shown how Goodwill is taken out of the balance sheet during the
deconsolidation.
13

2.3.1 Initial Consolidation
The precondition for an occurrence of Goodwill in an annual financial

statement´s balance sheet is the acquisition of a company by another (this is
also true for acquisitions of less than 100%). The treatment of such event is
topic of the following paragraph.
In order to be able to present the legal requirements as well as their implications

for the practical handling, the previously used example of the purchase of a
software company is being used: The software company is being bought for $10
million (for simplification purposes in cash) and has a net book value of $1
million (assets minus liabilities).
The regulation about how to treat Goodwill is explained in § 301 HGB and it
refers to § 290 - § 293 HGB to check the need for accounting for Goodwill.
Subsequently, first thing to do is to check if there is a duty of consolidated
financial reporting of a business combination, which can be found under § 290 -
§ 293 HGB. Here the regulation says that every business combination, where
the buying company is in a position to exercise controlling influence over
another company, the duty of reporting exists. 26 The ability to exercise
controlling influence is already enough, even if no controlling influence is being
executed.
Therefore the different ways of gaining controlling influence are being presented
in the following. The implications for how to measure the resulting Goodwill are
also part of each model.

26
§ 290 section 1 HGB
14

2.3.2 Models of Mergers & Acquisitions
1. Asset deal
The asset deal is represented by a direct purchase of all the assets and
liabilities of a company. Every position (all assets and all liabilities) will be offset
against each balance sheet position of the buying company. The created
Goodwill, which is the sum of purchase price minus the net assets, has to be
mentioned under the intangible assets position. The corresponding paragraph is
§ 246 section 1 HGB and it additionally states that this procedure is leading to a
separate financial statement. This means according to § 290 ff. HGB that there
is no need to create a consolidated financial statement since after the purchase
transaction, the business combination can be seen as one entity with one set of
assets and liabilities.
2. Share deal
Another possibility to gain controlling influence over another company is the so-
called share deal. The transaction takes place on the stock market for example,
when one company gradually buys shares of another company.
The recognition of the shares is topic of § 266 HGB and is done by adding it to
the section “financial assets” and hereunder as “shares in an affiliated
company”. According to § 255 HGB there is no need to account for Goodwill
since an overpayment is not possible when purchasing shares on the stock
markets.27
As soon as there is a parent-subsidiary relationship, meaning that the parent
company is capable of executing controlling influence, § 290 ff. HGB demands
a consolidated financial statement. Within this statement, the assets and
liabilities of the subsidiary have to be included completely. The resulting value
of the extrapolated purchase price (market value) minus the net assets has to
be mentioned as Goodwill under “intangible assets”.

27
Note: Technically the overpayment is already included in the price oft he
shares.
15

3. Merger
At a merger two companies are being combined. One feature of a merger is the
complete transfer of all the assets and liabilities in their entity with all rights and
obligations and without recourse to liquidation. Another characteristic is, that no
new company shares are being issued. The amount of shares outstanding can
be determined by adding the shares of both companies.
Similar to the asset deal, all assets and liabilities from the purchased company
are being added to the balance sheet of the purchasing company. Since this
type of business combination does not include a purchase price, there is no
need or even possibility for recognizing Goodwill. Of course this is not true if
one of the two merging companies already had Goodwill in their balance sheet.
In this case the Goodwill has to be included in the consolidated balance sheet
as well.
Hence, only business combinations that resulted from an asset deal or a share
deal have to (and are able to) compute an amount for Goodwill. Further, only
the share deal results in a need for a consolidated financial statement.
2.3.3 Subsequent accounting for Goodwill
Within the German Commercial Code, Goodwill is explicitly described as a

depreciable asset, which goes along the definition as an immaterial asset. This
is being defined under § 246 section 1 (sentence 4) HGB. The paragraph
further explains that expenses for development have to be posted in the
balance sheet, but at expenses for research there is a legal prohibition to
recognize it. This is also true for projects that represent a mixture of both
expenses.
The purchased Goodwill is subject to schedule depreciation according to § 253
section 5 HGB unless there is reason for an urgent unscheduled depreciation.
This means that Goodwill has to be written off after 15 years according to
16

German tax law28 and after 5 years according to HGB29. If there are reasons for
an expected useful life of more than 5 years in terms of the Commercial Code,
this has to be further explained in the appendix of the annual financial
statement.
6
5
4
3
Amount of Goodwill
2
1
0 Fiscal years
0 1 2 3 4 5
Figure 3: Goodwill impairment according to HGB
The graph in figure 3 shows the practical application of the scheduled

impairment according to the German Commercial Code. In the year of
purchase, the Goodwill is fully recognized in the balance sheet. From the first
year on the amount has to be depreciated in the way that it is written off
completely after 5 years which is equivalent to an annual depreciation of 25%
on the amount of Goodwill from the initial consolidation.
If there are unexpected reasons for an unscheduled additional depreciation,
due to extraordinary negative development of the global economy for example,
this can be done according to § 253 section 5 HGB. The amount of Goodwill
can always be written off but it can never be written up. This is logically
explainable by the fact that the increase of the amount of Goodwill is being
based on positive activities of the subsidiary and therefore it becomes an
inherent “non-purchased” Goodwill, whose increase never can be recognized in
the balance sheet.

28
§ 7 section 1 (sentence 3) EStG
29
§ 285 section 13 HGB
17

2.3.4 Deconsolidation
The term deconsolidation describes the procedure when a company is selling

an own subsidiary (with or without remaining Goodwill) to another company.
In the case of selling a subsidiary, whose Goodwill has been written off
completely, the selling price has to be recognized in the balance sheet as well
as the reduced amount of assets and liabilities. The excess is the profit from the
transaction. In short the calculation can be shown like this:
Disposal Profit = Selling Price – Book Value
In the other case, where the subsidiary still carries Goodwill (since it was only
held for three years for example) the selling company has to recognize the
selling price as well as the reduced amount of assets, liabilities and Goodwill. In
short the calculation can be shown like this:
Disposal Profit = Selling Price – (Book Value + Remaining Goodwill)
18

3 Goodwill recognition according to IFRS
The accounting system of the International Financial Reporting System is much

more comprehensive than the HGB system. The regulations are more extensive
and try to cover as many special cases as possible. The standards are more of
an “explaining” nature and are written like short comments on the issue. The
International Accounting Standards Board (IASB), which published the IFRS,
emphasizes that the standards are “principle based”30.
The IFRS is a set of regulations that contains all announcements of the IASB.
This includes the Framework, the standards (IAS/IFRS) and their interpretations
(SIC/IFRIC). In contrast to the German Commercial Code, the IFRS is
constantly being updated, which sometimes can have a very big impact.31
Since some regulations don’t come in accordance to others, a hierarchical order
is published under IAS 8.10, which gives the different aspects of the IFRS a
certain order. This hierarchy is referred to as “The House of IFRS” and is being
presented below.
House of IFRS
Statements of other Acknowledged

3. Hierarchical Literature about
standards with the same accounting
Level accounting
framework exercises
2. Hierarchical
Framework (according to IAS 8)
Level
1. Hierarchical
IFRS-Standards Interpretations (SIC/IFRIC)
Level
32
Figure 4: “House of IFRS”

30
http://www.ifrs.com/overview/General/differences.html (accessed on
15.06.2013)
31
Zülch, H., Hendler, M., 2008, p.XVI
32
Hütten, C., Lorson, P., 2000, S.994
19

As the hierarchical levels show, once questions on how to evaluate and

recognize a certain asset or case, the IFRS standards and their interpretations
build the first level to consult. If the problem has not been solved, the framework
and the other explanatory literature can be consulted. If the same question is
solved in different levels in different ways, the solution from a lower level has to
be chosen.
3.1 Purpose of the International Financial Reporting Standards
The financial reports that are prepared in accordance with the IFRS framework
are addressed to a wide range of users. Investors play a more important role in
the eyes of the IASB, since their needs mostly cover the needs of anybody else
that might be interested.33 For that reason, methods of valuation have been
chosen, which are rather future oriented and as close as possible to the
financial markets.
The central and single purpose of the annual closing is the information function,
which has the task to ensure the usability for investment decisions. The IASB
assumes that an annual financial statement is serving that need. Features of
and results of the information function are the market orientation of valuations,
the future orientation and early profit realization. Consequently, one of the core
concepts being followed, is the fair value concept, which will be explained on a
later stage.
It is important to mention that since 2005 all German companies that are capital
market oriented have to use the international accounting standards of the
IFRS.34

33
See IFRS Framework, No. 10
34
§ 315 a section 1 HGB
20

3.2 Approach to Goodwill
The regulations about the treatment of Goodwill under the International

Financial Reporting Standards can be found under IFRS 3, business
combinations. The corresponding chapter about the preparation of the
consolidated financial statement can be found under IAS 27.
This chapter will mainly be structured like the corresponding HGB chapter.
The legal prohibition of accounting for the non-purchased Goodwill is also true
for IFRS according to IAS 38.48. In contrast to HGB, the IFRS doesn’t require a
separate position for Goodwill under the intangible assets35 but gives the advice
to do so36.
3.2.1 Initial consolidation
This paragraph does not differ too much from the HGB regulations, which is
why the emphasis is being laid on the relevant differences between the two
legal texts. The models of Mergers & Acquisitions are also true for business
combinations under IFRS since they generally represent the ways of acquiring
another company in capitalism.
IFRS clearly defines the steps that have to be followed when consolidating
Goodwill initially. The process is referred to as the acquisition method. This
method consists of four steps, which are37:
1. Identification of the 'acquirer' – the combining entity that obtains control of the
acquiree (IFRS 3.7)
2. Determination of the 'acquisition date' – the date on which the acquirer
obtains control of the acquiree (IFRS 3.8)

35
IAS 1.54
36
1.1G6
37
IFRS 3.5
21

3. Recognition and measurement of the identifiable assets acquired, the

liabilities assumed and any non-controlling interest (NCI, formerly called
minority interest) in the acquiree
4. Recognition and measurement of goodwill or a gain from a bargain purchase
Step one and two are mostly obvious and will not be discussed further. Step
three has surely been done before the acquisition date but has to be done
again, when full insights in the company are possible. The recognition and
measurement of the assets is one pre-condition for evaluating the Goodwill as
well as the “purchase price allocation”, which will be the topic of the next
paragraph.
Step four is the overall result of the initial consolidation. Concluding on an
amount that can be placed as Goodwill in the balance sheet requires the same
calculations like the HGB and therefore the detailed method will not be
illustrated again.
In contrast to HGB, the IFRS regulations offer the choice of either recognizing
the whole calculated Goodwill of the acquiree or recognizing only the Goodwill
that is equivalent to the percentual ownership. Recognizing the whole Goodwill
is called the full goodwill method according to IFRS.38
Factors that lead to a too high purchase price, a so-called overpayment, are
part of the purchased Goodwill and have to be recognized accordingly.
Apart from the initial consolidation of Goodwill, the law allows to adjust the
already recognized Goodwill within a timespan of one year after the first
consolidation. During the so-called measurement period it is allowed to reduce
or increase the amount of Goodwill, which has been posted in the balance
sheet without toughing the profit and loss statement. Any revaluation of
Goodwill thereafter is equivalent to an impairment and has to be posted in the
profit and loss statement as an expense. Reasons for a revaluation can be new
information about the acquired company that has not yet been available at the
time of purchase.

38
IFRS 3.32
22

Before the amount of Goodwill can be posted on the balance sheet, several
calculations have to be undertaken to ensure a smooth subsequent accounting
for Goodwill:
3.2.2 Purchase Price Allocation
In contrast to HGB, IFRS does not take the book value into account, but uses
the fair value39 measurement to conclude with the amount of Goodwill. The fair
value method results in a price that could be reached on a transaction between
market participants on a certain date.40
The purchase price allocation means that at the moment of the acquisition of
another company, the costs are being distributed to the single assets and
liabilities positions of the target company,41 as can be seen in figure 5.
Purchase price
60% 20%
20%
Liabilities
Assets

Shareholder’s Equity
Figure 5: Purchase Price Allocation
This method ensures a clear view on how much has been paid for what and is
crucial for determining the Goodwill and it serves an easier evaluation of the
need for depreciation (which will follow in the next chapter).
After evaluating the positions of the target company using the fair value
measurement and comparing the sum of the positions with the purchasing

39
IFRS 3.37
40
IFRS 13
41
IFRS 3.16; IFRS 3.36
23

price, the Goodwill can be concluded. This amount is then being posted on the
new balance sheet.
3.3 Subsequent accounting for Goodwill
Before being able to start the subsequent accounting for Goodwill, a few steps
have to be undertaken.
First, the useful life of the intangible assets of the acquired company has to be
determined. The purpose of this calculation will be explained later. Second, the
recoverable amount and the carrying amount have to be calculated. In the last
step, the so-called impairment test is being used to tell if there is a need for
depreciation and how much the asset “is losing”.
3.3.1 Determination of Useful Life
The useful life of every asset, that was part of the transaction, has to be
evaluated. This is done with economic criteria and has the purpose of giving an
overview over “the period over which an asset is expected to be available for
use by an entity; or the number of production or similar units expected to be
obtained from the asset by an entity”42.
An intangible asset can be regarded “as having an infinite useful life when,
based on an analysis of all the relevant factors, there is no foreseeable limit to
the period over which the asset is expected to generate net cash inflows for the
entity”43.

42
IAS 38
43
IAS 38
24

3.3.2 Recoverable amount
The next step before being able to depreciate Goodwill is to define a value to
which the Goodwill should be compared. This value is the so-called recoverable
amount. The indicator is the result of the following calculations44:
Recoverable amount = Value in use

or:
Recoverable amount = Asset’s fair value – cost of disposal

Figure 6: Calculation of recoverable amount
These two calculations have to be made in order to determine the higher result
of both. It is very important to do so, since only the higher of both can be used
for further calculations.
The asset’s fair vale can be calculated as the price the seller would get in a
transaction between market participants. The value in use is the present value
of expected future cash flows.
If the recoverable amount cannot be determined for the individual asset, there is
a possibility to form groups of assets, which are from the same type. These
assets are referred to as Cash Generating Units (CGU) and represent “the
smallest identifiable group of assets that generates cash inflows [and] that are
largely independent of the cash inflows from other assets or groups of assets”45.

44
IAS 36
45
IAS 36.6
25

3.3.3 Carrying amount
The carrying amount represents the value at which an asset is recognized in the
balance sheet after deducting accumulated depreciation and accumulated
impairment losses.46
Basically it is the book value of an asset.
3.3.4 Impairment Test
The impairment test is the international equivalent to the scheduled depreciation

in the German Law, but with a completely different approach.
In March 200447 the IAS regulations number 36 has been subject of a far-
reaching transformation. From 2004 on, the subsequent treatment for Goodwill
changed from a scheduled depreciation to a completely unscheduled
depreciation. For the determination of the amount at which the Goodwill has to
be impaired, the calculations about the useful life, the recoverable amount and
the carrying amount were necessary.
Since Goodwill is not de-valued annually, there has to be another regulation.

This regulation is called the “impairment test” and can be found under IAS 36.
The regulation states that all Goodwill positions have to be tested for
impairment annually. This means that every year, the recoverable amount is
being compared to the carrying amount and if the recoverable amount is less
than the carrying amount, an impairment of Goodwill is necessary.
Impairment on Goodwill
necessary if: Recoverable amount < Carrying amount

Figure 7: Amount of impairment

46
IAS 36
47
IAS 36
26

The resulting value is the amount, at which the Goodwill has to be written off. If
the recoverable amount is not identifiable, the value of its CGU has to be
considered. The CGUs shall be subject to impairment tests “at leas annually”48
since they represent are more complex construction.
The indications of impairment are being listed in the IAS 36.12 and can be split
into internal and external reasons for such a need to impair:
External sources:
• market value declines
• negative changes in technology, markets, economy, or laws
• increases in market interest rates
• net assets of the company higher than market capitalization
Internal sources:
• obsolescence or physical damage
• asset is idle, part of a restructuring or held for disposal
• worse economic performance than expected
• for investments in subsidiaries, joint ventures or associates, the

carrying amount is higher than the carrying amount of the investee's
assets, or a dividend exceeds the total comprehensive income of the
investee

Figure 8: Indications of impairment
The list in figure 8 is not exhaustive. The impairment tests need to be

undertaken, whenever there is an indication for a reduced recoverable amount.
Additionally, conducted impairments may indicate that the asset´s useful life,
depreciation method or the residual value need to be reviewed and adjusted.49

48
IAS 36.90
49
IAS 36.17
27

“A reversal of an impairment loss for Goodwill is prohibited.”50 This is also true

for HGB due to one simple fact: The Goodwill recognized in the balance sheet
always represents purchased Goodwill. Once there seems be a reason for a
reversal of an impairment, this can only be true for an inherent Goodwill. But the
inherent (non purchased Goodwill) can never be presented within a balance
sheet.
3.3.5 Recognition of an impairment loss
The recognition of an impairment loss can be summarized in just a few steps.

These steps are all being presented in IAS 36:
1. The loss is recognized when recoverable amount is below carrying
amount
2. The loss is recognized as an expense (on the profit and loss statement)
3. Adjust depreciation for future periods
To calculate the actual impairment loss, Ernst & Young has given a short and
precise summary in their publication Impairment of long-lived assets, goodwill
and intangible assets”51:
“All other assets are tested for impairment prior to testing goodwill for
impairment. The impairment loss is the amount by which the CGU’s carrying
amount, including goodwill, exceeds its recoverable amount. This loss is
allocated first to reduce goodwill to zero, then to the other assets in the CGU on
a pro rata basis, based on the carrying amount of each asset. However, the
carrying amount of an asset within that CGU may not be reduced below the
highest of (a) its fair value less costs to sell (b) its value in use, and (c) zero.”

50
IAS 36.124
51
Ernst & Young LLP, 2011, Impairment of long-lived assets, goodwill and
intangible assets, US GAAP and IFRS, p. 4
28

4 Comparing and contrasting the two approaches
When comparing the two approaches, the first thing to mention is the general
purpose. The HGB follows an approach that focuses on the information and
documentation function to provide the financial information to a heterogeneous
audience. In contrast, the IFRS defines their core purpose as the information
function, which of course lies in the nature of the defined target group: financial
markets and professional investors. The common purpose is the presentation of
information, which aims at presenting the true and fair view on the company´s
asset, financial and profit situation.
The following table compares the to approaches in terms of Goodwill treatment:
HGB IFRS
Initial consolidation According to According to

acquisition method purchase method
Subsequent No amortization Scheduled depreciation

accounting
Impairment test Unscheduled de-
preciation possible in
No reversal of impairment special cases
loss
Negative Immediate recognition in Recognition on profit

Goodwill profit and loss statement and loss statement if:
- expected negative
development came
true
- it represents a return
Figure 9: Contrasting the Goodwill treatment
In figure 9 the main differences of the treatment of Goodwill under HGB and
IFRS are being presented. The list is narrowed down to the most important
differences, which have a significant impact on the three main points of contact
between the legislation and Goodwill: The initial recognition, the subsequent
recognition as well as the special case negative Goodwill. The deconsolidation
29

is not included in this table, since there are no significant differences within the
selected regulatory.
First to mention is that the methods used for initial consolidation differ slightly.
Under HGB, all costs that are related with the acquisition of the other company
are accounted for as a part of the business´s fair value. This fair value is then
used for calculating the Goodwill by subtracting it from the purchase price. In
contrast, the IFRS only takes into account the sum of all the asset´s and
liabilities´ fair value and computes them the day the executive control is handed
over. This means that under the purchase method all other costs that are
related to the acquiring (like restructuring costs) are included, even if they occur
before or after the actual day of acquisition. The acquisition method recognizes
the other costs separately as a business expense.
The differences in subsequent accounting for Goodwill have been discussed

before in a very detailed way. To demonstrate the differences in a practical way,
figure 10 exemplary displays the amortization under HGB and the impairments
of IFRS.
6
5
4
3 HGB
IFRS
2
1
0
Fiscal years
0 1 2 3 4 5
Figure 10: Comparison of subsequent accounting

The blue line shows a continuous amortization like it is required under HGB.
The red line indicates that the Goodwill has been impaired only in the second
and fifth year. Obviously the amount of the two impairments was higher than the
continuous ones.
30

When a company has to deal with a negative Goodwill, it has to recognize the
resulting loss on the profit and loss statement immediately according to IFRS.
Under HGB this can wait until the loss actually occurs.
31

5 Goodwill in Dax30 companies
In order to test the actual application and their implications for the accounting
for Goodwill, the German benchmark index DAX has been chosen.
On the one hand, the 30 companies that are listed in the index all publish their
annual financial reports according to the IFRS standards52. This ensures the
best comparability possible. On the other hand, all members of the DAX
adopted the updated standard that has been approved by the EU in 200353
within one year.
This chapter will begin with presenting selected representative articles that are
related to the topic of this paper. Their research method and results will be
presented briefly.
After that, the annual financial reports of 2012 of the companies listed in the
German share index DAX30 will be analyzed according to their accounting for
Goodwill.
The results will be discussed together with the conclusion of this paper, followed
by a look ahead.
5.1 State of empirical research
Before analyzing the official data from the annual reports and discussing the
topic from a critical point of view, the state of empirical research should be
examined. Several studies have already examined the effect of Goodwill
impairment either in contrast to the previous IFRS regulations or to other
accounting regulations.
Two of the selected articles discuss the effects of Goodwill impairment from the
perspective of US GAAP regulations´ point of view. In terms of Goodwill

52
See the respective annual financial statements
53
Amt für Veröffentlichenungen Europa, Verordnung (EG) Nr. 1725/2003 der
Kommission vom 29. September 2003
32

impairments the two approaches do not differ significantly.54 The impairment-

only approach was put into law in 2001 when SFAS 121 has been updated and
issued under the article SFAS 142.
Has Goodwill gone bad? (2012)55

Way of research
- Empirical study that compares the quality of accounting before and after
SFAS 142
- The authors compare the effects of Goodwill accounting methods on
stock prices in the US
Result of research
- SFAS 142 leads to inflated Goodwill balances and untimely impairments
- The impairments were less timely and did not improve the quality of
information about the future profitability compared to SFAS 121
- Managers actively use SFAS 142 to delay necessary impairments
- Management influences the timing of Goodwill impairment to positively
effect the balance sheet, stock prices and earnings
- Description of the possibility that annual impairments should go along
with scheduled amortization to better reflect underlying economics
Amortization versus impairment of Goodwill and accounting quality

(2012)56
Way of research
- Empirical study of the effects of IFRS 3 (Impairment-only approach) on
the value relevance and timeliness of accounting information
- Comparison of the effects on stock prices in the Netherlands, Spain,
France and Germany

54
intangible assets, US GAAP and IFRS, p.4
55
Li, K., Sloan, R., 2009
56
Alfono, L., et al., 2011
33

Result of research
- The impairment-only approach does not provide a better basis for
valuation of shares or decision making for professional investors than the
amortization
Has Goodwill accounting under SFAS 142 improved financial reporting?

(2007)57
Ways of research
- Evaluating the correlation between three accounting methods (only
amortization, only impairment and a mixture of both methods) and stock
prices
Results of research
- The value relevance of financial reports from large firms has improved
under annual impairment testing (not true for small or profitable firms)
- Eliminating the amortization method lead to a reduction of the financial
reporting quality
- The firm-specific mixture of impairments and amortization leads to most
value relevant Goodwill figures
The three articles draw a very same picture. The impairment-only approach did
not lead to a significantly better presentation and treatment of Goodwill; neither
under US GAAP nor under IFRS. But it seems that the alternate does not
handle the issue in a more successful way.
For the authors of two papers the concluding resume is that a mixture of both
approaches, which is adjustable to the specifications of single firms, does
eliminate the weaknesses of both and results in a presentation of Goodwill that
reflects the reality best.

57
Chambers, D., 2007
34

5.2 Empirical research
This chapter contains the analysis of the annual financial reports of the fiscal
years 2000 - 2012 from all companies listed in the DAX.
The reader will be provided with a comparison between the depreciation of
Goodwill from 2000 – 2004 and from after the introduction of the impairment-
only approach 2005 – 2011. This way the effects of the modification of IFRS 3
can clearly be seen. The analysis for the implied useful life of Goodwill goes
one step further and looks differently on the amount of impairment and puts it in
relationship to the total amount of Goodwill recognized in the balance sheet.
Using this method it can be approximated how long the purchased Goodwill will
be existent, ceteris paribus.
Finally, Goodwill and shareholder equity will be put into a relationship to analyze
the implications that result from a high or low ratio. This balance sheet analysis
highlights the corresponding risks, which are involved when companies carry
too much Goodwill in relation to their shareholder equity will me emphasized.
5.2.1 Data basis
The data being used was taken from the official publishing website for annual
financial reports, the “Bundesanzeiger”. The website is powered by the German
Federal Ministry of Justice and can be reached over: www.bundesanzeiger.de.
In 2012 two companies had to leave the DAX due to the fact that two other had
become more valuable in terms of market capitalization. The Metro AG and
MAN AG had to leave the index and were replaced by Lanxess AG and
Continental AG.
35

5.2.2 Overview of impairments from 2000 until 2011
The figure below shows the members of DAX30 from 2000 until 2011. In
addition it gives an exemplary amount of reported Goodwill for the fiscal year of
2011 and the average amount of impairment of the years 2005 - 2011. The last
two columns put the total amount of impairment for 2005-2011 (2000-2004) in
relationship with the average amount of Goodwill for the same time period.
Reported Impairments Impairments

Average
amount of on average on average
impairment
Goodwill 59 Goodwill Goodwill
58 2005 - 2011
(2011) 2005 - 2011 2000 - 2004
Adidas AG 1.580 0 0,0% 7,2%

Allianz SE 11.722 94 0,8% 8,5%
BASF SE 5.962 92 2,0% 9,7%
Bayer AG 9.160 0 0,0% 11,7%
Beiersdorf AG 51 30 27,0% 40,2%
BMW AG 369 0 0,0% 0,0%
Commerzbank AG 2.088 101 6,9% 19,0%
Daimler AG 736 4 0,4% 3,9%
Deutsche Bank AG 10.973 175 2,1% 4,3%
Deutsche Börse AG 2.095 2 1,1% 5,9%
Deutsche Lufthansa AG 613 43 7,2% 37,6%
Deutsche Post AG 12.074 150 1,3% 11,1%
Deutsche Telekom AG 17.158 1.198 6,1% 15,2%
E.ON SE 14.083 649 4,1% 8,0%
Fresenius Med. Care AG 9.187 0 0,0% 2,9%
Fresenius SE 12.669 0 0,0% 0,0%
HeidelbergCement AG 10.763 122 1,5% 8,3%
Henkel AG 6.712 8 0,2% 12,8%
Infineon Technologies AG 21 3 2,7% 16,1%
K + S AG 651 0 0,0% 26,8%
Linde AG 7.868 1 0,0% 4,0%
MAN AG 726 0 0,0% 12,4%
Merck KGaA 4.716 6 0,3% 7,3%
Metro AG 4.045 45 1,1% 5,0%
Münchener Rück AG 3.511 63 1,9% 9,6%
RWE AG 13.593 117 1,0% 6,0%
SAP AG 8.709 0 0,0% 15,4%
Siemens AG 15.706 265 1,9% 9,5%
ThyssenKrupp AG 3.378 67 1,7% 4,2%
Volkswagen AG 4.150 1 0,0% 27,7%
60
Figure 11: Overview of impairment s from 2000 – 2011

58
In million €
59
In million €
60
Taken from respective Annual Financial Statements 2012, Source:
WirtschaftsWoche Online, 2012
36

In the last column it can be seen that during the last four years of depreciating
Goodwill in a scheduled way, an average amortization of around 12% was
realized. The numbers are calculated that way, that the sum of Goodwill
reported within this timespan is divided by five and then set into relationship
with the amount of amortization. These calculations become very interesting
when contrasting them with the calculated values from 2005 until 2011.
Although the second timespan is about seven years, the average Goodwill
divided by the impairments is much lower than before. This shows that the
companies depreciated their Goodwill position less than before. In addition it
indicates that the average amount of Goodwill per company has risen.
Beiersdorf (27%), Lufthansa (7.2%), Commerzbank (6.9%) and Deutsche
Telekom (6.1%) had the highest impairments in relationship to the average
Goodwill. All other companies have impairments of around 1%, which is much
lower than before the introduction of the impairment-only approach. Almost all
30 companies have less than half the impairments than before and absolutely
all impair their Goodwill less than before, which is indicated by the red color.
5.2.3 Implied useful life
The implied useful life is a theoretical construct that has the goal to extrapolate
the expected time Goodwill will be on the balance sheet. This can be done by
diving the fiscal year´s reported Goodwill by the amount of impairment for the
same year. The formula then looks like this:
(𝐆𝐨𝐨𝐝𝐰𝐢𝐥𝐥 + 𝐈𝐦𝐩𝐚𝐢𝐫𝐦𝐞𝐧𝐭)
𝐈𝐦𝐩𝐥𝐢𝐞𝐝 𝐮𝐬𝐞𝐟𝐮𝐥 𝐥𝐢𝐟𝐞 =
𝐈𝐦𝐩𝐚𝐢𝐫𝐦𝐞𝐧𝐭

Figure 12: Implied useful life
By adding the annual impairment to the Goodwill, the amount before impairing it
can be divided by the actual impairment so that the future expectation can be
derived. Basis for this is the assumption that “if the impairments would continue
like this, how long would the Goodwill stay on the balance sheet”.
37

The results of this calculation can be found in figure 13 below.
Reported Impairment Implied useful

Goodwill61 loss62 life63
2011 2012 2011 2012 2011 2012
Adidas AG 1.553 1.281 0 265 NI 5,8
BASF SE 5.962 6.385 11 0 543,0 NI
Bayer AG 9.160 9.293 21 0 437,2 NI
Continental AG 5.692 5.622 0 76 NI 75,4
Deutsche Bank AG 10.973 9.297 725 1.595 16,1 6,8
Deutsche Telekom AG 17.158 14.440 3.100 2.965 6,5 5,9
E.ON SE 14.083 13.440 160 328 89,0 42,0
HeidelbergCement AG 10.763 10.609 32 110 337,3 97,4
K+S AG 651 642 1 0 652,0 NI
Lanxess AG 167 174 1 1 168,0 175,0
Siemens AG 15.706 17.069 264 0 60,5 NI
Thyssen Krupp AG 3.378 3.550 290 45 12,6 79,9
Average: 7.937 7.650 512 673 232,2 61,0
64
Figure 13: Implied useful life DAX30
Within the fiscal year 2011 only 10 (30%) out of the 30 DAX companies
recognized an impairment loss as a result of the annual testing. The following
year only 8 (26%) recognized a loss. The Deutsche Telekom AG published the
highest impairment loss in both years. The loss was the consequence from the
acquisition of T-Mobile USA where reclassifications lead to an impairment of
€2.297 million in 2011 and the actual selling of the subsidiary demanded
another impairment of €2.605 million in 2012.65
Before the introduction of IFRS 3, the IFRS defined the useful life of Goodwill as
20 years, according to IAS 22. In special cases Goodwill could exceed 20
years, if the company was able to reason the decision. After examining and
setting the useful life, Goodwill was amortized accordingly until it was taken out
the balance sheet. When putting the impairment losses of the DAX30

61
In million €
62
In million €
63
NI = No Impairment; in years
64
65
Annual Financial Report Deutsche Telekom AG, 2012
38

companies in relationship with the recognized Goodwill, an average implied

useful life of 232.2 years from the 2011 perspective results. Before the
introduction of IFRS 3 the average useful life of Goodwill was 11 years.66
Within this analysis, K+S AG had the highest implied Goodwill with more than
652 years, followed by BASF AG (543 years) and Bayer AG (437 years). The
lowest implied Goodwill in 2012 had Adidas AG with 5.8 years.
The relatively low Goodwill impairments, in connection with the fact that 70% (in
2011) respectively 73% (in 2012) did not recognize any impairment loss, seem
to indicate a conceptual transition of the international accounting regulations
and proof the far reaching relevance of the introduction of IFRS 3.

66
Behr, G., Leibfried, P., 2010, p.2
39

5.2.4 Balance Sheet Analysis
Institutional investors, banks, insurances and rating agencies daily analyze

balance sheets and income statements of a very large amount of companies.
This is done to evaluate the price of shares, form an opinion about the credit
worthiness or to conclude on an interest rate for a credit.
One of the essential ratios which is used in advanced balance sheet analysis is
the relationship between Goodwill and Shareholder Equity. When reducing a
corporation’s balance sheet to it´s most skeletal from, the following equations
results:
Assets = Liabilities – Shareholder Equity
As can be seen, Shareholders’ equity is one of the three main components of a

balance sheet. When rearranging the equation it can be seen that shareholders’
equity is the difference between assets and liabilities amounts:
Assets – Liabilities = Shareholder Equity
Shareholder equity can be seen as the counterpart of owners’ equity in a sole

proprietorship. In the case of a corporation, the owners are called shareholders
since they own a share of the company. As a measure, the shareholder equity
is the amount of money the owners would be left with in case that all assets are
being sold and all liabilities are being paid off.
The statements above underline the importance of shareholder equity and it’s
relevance when evaluating an investment or a company in general. In the
following the shareholder equity is put into a relationship to Goodwill. Both
figures from all 30 members of the DAX30 are taken from the official annual
financial reports 2012 of the respective company. The underlying equation is
the following:
40

(𝐆𝐨𝐨𝐝𝐰𝐢𝐥𝐥)
𝐆𝐨𝐨𝐝𝐰𝐢𝐥𝐥 − 𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝐄𝐪𝐮𝐢𝐭𝐲 𝐑𝐚𝐭𝐢𝐨 =
𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫 𝐄𝐪𝐮𝐢𝐭𝐲
Figure 14: Goodwill – Shareholder Equity Ratio
The table in figure 15 presents the calculated ratios for the fiscal years of 2011
and 2012. It is ordered by descending percentual amounts of the year 2012.
Goodwill/
Shareholder 68
67 Goodwill Shareholder
Equity
Equity
2011 2012 2011 2012 2011 2012
SAP AG 8.433 9.717 8.711 13.274 103,3% 136,6%
Fresenius Medical Care AG 6.425 7.248 7.095 8.650 110,4% 119,3%
Fresenius SE 11.031 13.352 12.773 15.114 115,8% 113,2%
RWE AG 13.979 12.122 13.593 13.545 97,2% 111,7%
Deutsche Post AG 11.199 12.164 10.973 10.922 98,0% 89,8%
Siemens AG 20.658 19.811 15.706 17.069 76,0% 86,2%
Linde AG 11.604 13.094 7.868 10.620 67,8% 81,1%
Thyssen Krupp AG 10.382 4.526 3.378 3.550 32,5% 78,4%
HeidelbergCement AG 13.569 13.713 10.763 10.609 79,3% 77,4%
Henkel AG 8.670 9.511 6.712 6.661 77,4% 70,0%
Deutsche Börse AG 3.133 3.197 2.095 2.078 66,9% 65,0%
Continental AG 7.543 9.144 5.692 5.622 75,5% 61,5%
Bayer AG 19.271 18.569 9.160 9.293 47,5% 50,0%
Deutsche Telekom AG 39.941 30.543 17.158 14.440 43,0% 47,3%
Merck KGaA 10.448 10.361 4.716 4.696 45,1% 45,3%
E.ON SE 39.613 38.819 14.083 13.440 35,6% 34,6%
Münchener Rück AG 9.855 11.051 3.511 3.505 35,6% 31,7%
Volkswagen AG 57.539 77.515 4.334 23.938 7,5% 30,9%
BASF SE 25.385 25.804 5.962 6.385 23,5% 24,7%
Adidas AG 5.128 5.291 1.553 1.281 30,3% 24,2%
Allianz SE 44.915 53.553 11.722 11.679 26,1% 21,8%
K+S AG 3.085 3.477 651 642 21,1% 18,5%
Deutsche Bank AG 53.390 54.410 10.973 9.297 20,6% 17,1%
Deutsche Lufthansa AG 3.480 3.979 613 615 17,6% 15,5%
Commerzbank AG 24.803 27.034 2.088 2.080 8,4% 7,7%
Lanxess AG 2.074 2.331 167 174 8,1% 7,5%
Beiersdorf AG 3.016 3.287 51 66 1,7% 2,0%
Daimler AG 41.337 45.510 736 729 1,8% 1,6%
BMW AG 27.103 30.402 374 374 1,4% 1,2%
Infineon Technologies AG 3.355 3.575 21 21 0,6% 0,6%
69
Figure 15: Goodwill – Shareholder Equity Ratio in DAX30

67
In million €
68
In million €
41

When looking at the numbers, the first thing that can be seen is the fact that 13
(43%) companies have a Goodwill – Shareholder Equity Ratio of more than
50%. When comparing the ratios from 2011 to 2012 it can be seen that they
have not changed significantly. This is true for all companies except for
Volkswagen, which recognized an increase from 7.5% (2011) to 30.9% (2012)
due to the high increase of Goodwill. Thyssen Krupp also experienced an
increase of the ratio due to the dramatical loss in shareholder equity. The low
shareholder equity of 2012 mainly results from an annual deficit of about €5
billion and dividend payments about €293 million.70
Four corporations do have higher Goodwill than shareholder equity in their
balance sheet. Namely these are the two Fresenius corporations, SAP and
RWE. Except for RWE the same list of companies did also appear at the very
top in the analysis of total assets compared to Goodwill. This indicated that they
have a disadvantageous or even overstated amounts of Goodwill in their
balance sheet.
Within the practice of balance sheet analysis there is no “optimum” ratio

between Goodwill and shareholder equity. The reason for the problem of too
high ratios can be found in either the amount of Goodwill compared to assets
and liabilities or the amount of shareholder equity itself. In the fiscal year of
2012, six companies have a ratio lower than 10%. All of them report Goodwill of
three-digit million amounts or less. It cannot be concluded on a pattern of
specific branches since these six contain of representatives of the chemical,
automotive, consumption goods, financial services and semiconductors
industry. In addition, three of them belong to the four companies with the lowest
shareholder equity in the DAX30.
The negative effect a high Goodwill – Shareholder Equity Ratio has is the fact
that if there are expected negative market developments and expected negative
return figures, an extensive impairment has to be recognized. Once this is done,
it dramatically changes the key performance indicators, such as the relationship

69
70
Taken from respective Annual Financial Statement 2012
42

to shareholder equity. Since losses of the amount of Goodwill are being

presented in the profit and loss statement, it directly affects the shareholder
equity and therefore reduces dividend payments and credit ratings.
In extreme cases the Goodwill might even exceed the shareholder equity, which
can be seen in figure 15 and the corresponding ratios above 100%. Such
calculatory negative shareholder equity signifies the situation where after selling
all assets and paying off all liabilities, the shareholders still owe money to
creditors. Thanks to the legal structure of a publicly traded company this in not
possible in practice. The situation exists on the paper only and is the reason
why companies still can maintain their operations, despite the fact that they
announce substantial losses.
Due to the distortions caused by Goodwill within the balance sheet, institutional
investors and credit rating agencies subtract out the amount of Goodwill to get a
more realistic view on the company’s financial stance.
5.3 Financial planning under HGB and IFRS
Quote from the annual financial statement 2012 of Adidas AG:

“Future changes in expected cash flows and discount rates may in the future
lead to impairment of designated business or goodwill.”
Official statements like these are designed to inform the interested reader about
the fact that under IFRS Goodwill is impaired unscheduled. This sentence may
sound quite unimportant but it has wide influence on the profitability of a
company and therefore on the financial planning of an investor.
This chapter will show that unscheduled impairments have a negative effect on
the financial planning for an investor. Therefore the resulting contortions that
are caused by the impairment-only approach under IFRS will be demonstrated.
For HGB it is being assumed that the amortization does not have a negative
43

impact on financial planning since it is scheduled and therefore ensures plan

ability. The un-scheduled depreciation of Goodwill under HGB is not discussed
further because if there is an actual need for such unexpected adjustment, the
same need would exist for IFRS as well. Therefore this factor offsets under
HGB and IFRS.
The impairment-only approach is shaped by the recognition of Goodwill in the

balance sheet and impairing it in an unscheduled way. This means that
impairments directly influence the annual profit or loss and have a significant
impact on key performance indicators. Due to the volatile indicators, planning
and control is not possible. In times of negative market development, the effect
even potentiates: A financial crisis leads to negative sales returns, causing an
annual loss, and due to negative financial prospects the recoverable amount
decreases so that additionally an impairment has to take place.
Another factor that influences the financial planning in a negative way is the fact
that a company is able to actively influence the impairments due to
comprehensive administrative discretion. This enables managers to delay the
necessary impairments of Goodwill and causes impairments on a day in the
future with higher volume.
The delay of impairments is also the key feature of the big-bath-strategy. This
strategy is the topic of an article from the Graduate School of Business at the
University of Zurich that holds the tile “Big Bath Accounting using Fair Value
Measurement discretion during the financial crisis”. 552 U.S. bank holding
companies were subject to this analysis about unrealized gains and losses.
Herein the authors found “evidence that banks exhibiting poor pre-managed
performance levels report significant higher discretionary […] losses.
Furthermore, these banks are more likely to switch in the subsequent quarter
from non-managed negative earnings to reported positive earnings, which is
consistent with the big bath hypothesis.”71 They were able to show that if the
management cannot expect bonus payments due to disadvantageous

71
Fiechter, P., Meyer, C., 2009, p. 1
44

performance indicators, high Goodwill impairments are to expect. Too high

impairment volumes are also occurring when new management has taken over
the company, which often results in a shift of the overall strategy. Subsequently
a big bath is shaped by excessive impairments that occur rather scattered.
Summarizing the arguments it can be stated that there is the possibility and
evidence for the case that impairments are only recognized when they are
desirable or inevitable.
45

6 Concluding remarks and look ahead
Reason for the low or not performed depreciations in the years analyzed might
be, that there was actually no need for an impairment due to the positive market
development. Such positive development leads to an increased recoverable
amount due to an expected increase of sales. Another possible reason for the
not performed impairments could be that the actual purchased Goodwill has
been substituted by non-purchased Goodwill. This assumption is further
supported by the results of analyzing the implied useful life, but is explicitly
forbidden to present in the balance sheet under IFRS. The calculated implied
useful life has shown that some companies don´t see the need for an
impairment but rather see the purchased Goodwill as a long-term investment. A
lot stands for the fact that the purchased Goodwill should be transferred into
inherent Goodwill, which would imply impairments and the disappearance from
the balance sheet.
To recap quickly, Goodwill is defined as the added value of the whole company
to the sum of the single assets. It is the amount, at which the purchase price is
higher than the sum of assets minus liabilities. It is exactly the amount that the
acquired company brings into the business combination in form of synergies
and other features that lead to positive economical development. Technically it
has to be reduced over time since it reflects an asset of the acquired company.
Reducing Goodwill is the only option, since the added value that has be paid for
sooner or later becomes the added value of the acquiring company over the
sum of it´s single assets.
The different treatment of Goodwill under HGB and IFRS results in different
amounts for subsequent accounting for the inherent Goodwill. These
differences state a problem of comparability and a direct disadvantage for
companies publishing a HGB report. Even if there is no actual reason for
impairing the Goodwill, the difference exists since under HGB it has to be
amortized and under IFRS it has the same value like at the first day. This
mismatch has negative influence on gathering capital and the credit rating. Low
credit ratings are followed by higher financing costs due to higher interest rates.
46

German companies, which are capital markets oriented have to apply IFRS for
issuing their annual financial reports. Despite this fact, the German Commercial
Code finds wide application in small and medium sized enterprises. Due to the
high significance of the HGB, German companies have a noticeable
disadvantage over international competitors on average.
The treatment of Goodwill under IFRS might have worked in times where the
Goodwill position in the balance sheet has not reached amount like nowadays.
Due to the fact that business combinations and corporate takeovers have
increased in the last decade, the legal regulations are not contemporary
anymore. Until recent years, the balance sheet contained of mainly physical
assets such as property, equipment, plant and inventory or financial assets
such as long-term investments. The recognition of such assets in financial
statements is much easier and normally does not come along with a large
premium since their market price can be evaluated more easily. The increasing
importance of service and knowledge sectors has changed the nature and
extent of the Goodwill amount that result from mergers and acquisitions
Both accounting regulations do have their advantages and disadvantages. The

modification of IFRS was intended to improve the quality of the Goodwill figures.
And the modification of HGB was rather focused on eliminating differences
between the German and the international law. The impairment-only approach
under IFRS 3 was able to decimate the problems that occur when applying a
scheduled amortization. Only that now there are completely different problems,
of which the lack of plan ability is the most serious one.
As Dennis J. Chamber concluded in his paper “Has Goodwill Accounting Under
SFAS 142 Improved Financial Reporting?”, that there are two applicable
solutions for reporting of Goodwill and both have advantages and
disadvantages. The most obvious solution when trying to find one consistent
solution is the most advisable in this case: A combination of both.
A future accounting regulation could look like this:

Branch specific regulations about the amortization and regular impairment
testing at the same time would help improving the quality of accounting, but
47

demands very detailed regulations. When international accounting standards

setting boards would cooperate on this topic a solution that serves the needs of
both companies and investors can be reached.
By introducing such a mixture of amortization and impairments, the quality and

comparability of financial statements would definitely increase. Investors could
better plan their engagements and companies would benefit from consistent
regulations no matter where they have to publish their financial reports.
The future is one global accounting standard.
48

7 Bibliography
Print materials
Books:
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in Deutschland und DRSC, Stuttgart: Schäffer-Poeschel
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SRH University of Applied Sciences Berlin

The treatment of Goodwill under HGB and IFRS

1st Supervisor: Ian Towers

Processing time: Eight weeks

Date of Submission: 28.06.2013

Last Name: Kahlfeldt

I declare under penalty of perjury that I have produced this

independently, without unauthorized assistance of third parties and

I am aware that a false affidavit will have legal consequences.

FIGURES .............................................................................................................................................. IV

FIGURE 1: PURCHASED GOODWILL ...................................................................................................................................... 5

The economic reality is shaped by constant transitions. Current changes in the

Subject of this paper is the determination and treatment of Goodwill according

Keywords: Goodwill, HGB, IFRS, Negative Goodwill, Dax30, Useful life,

In the article called “Fair Valuation, Market Responses, And Accounting

“The purpose of financial reporting is to provide not only reliable information

Goodwill represents a form of an intangible asset, that has reached a whole

Subsequently an analysis of accounting for Goodwill on the example of the

1.1 Types of Goodwill – defining the term

Goodwill is considered as an intangible asset and is being presented on the

1.1.1 Purchased Goodwill

The purchased Goodwill is calculated as follows:11

P. Goodwill = Total Purchase Price – Sum of Assets and Liabilities

To picture this in a practical way, a standard example is frequently used:

1.1.2 Non-purchased Goodwill

This type of Goodwill can be considered as the “pure Goodwill”. As stated

The non-purchased Goodwill, in contrast to the purchased Goodwill, cannot be

1.1.3 Negative Goodwill

Negative Goodwill is based on the concept of Goodwill and consequently

This appearance reflects expected negative returns of the purchased company

1.2 Importance of Goodwill

For the purpose of presenting the importance of Goodwill, the German

2 Goodwill recognition according to HGB

2.1 Purpose of the German Commercial Code (HGB)

When describing and evaluating accounting regulations, the purpose is of

The separate financial statement contains of three functions:

1. Documentation of assets, it´s utilization and the results of the utilization

2.2 Accounting Law Modernization Act

In December 1985 Germany accepted the European Accounting Directives Act.

The improvement of the information function was reached with a number of

1. Abolishment of several recognition and valuation options (e.g.

These examples point at the goal of strengthening the information function

2.3 Approach to “Geschäfts- oder Firmenwert”

In the following, specifications of the German Commercial Code will be

2.3.1 Initial Consolidation

The precondition for an occurrence of Goodwill in an annual financial

In order to be able to present the legal requirements as well as their implications

2.3.2 Models of Mergers & Acquisitions

2.3.3 Subsequent accounting for Goodwill

Within the German Commercial Code, Goodwill is explicitly described as a

Figure 3: Goodwill impairment according to HGB

The graph in figure 3 shows the practical application of the scheduled

The term deconsolidation describes the procedure when a company is selling

Disposal Profit = Selling Price – Book Value

Disposal Profit = Selling Price – (Book Value + Remaining Goodwill)

3 Goodwill recognition according to IFRS

The accounting system of the International Financial Reporting System is much

House of IFRS

Statements of other Acknowledged

As the hierarchical levels show, once questions on how to evaluate and

3.1 Purpose of the International Financial Reporting Standards

3.2 Approach to Goodwill

The regulations about the treatment of Goodwill under the International