It's not all bad on the goodwill front

Article Abstract:

Exposure Draft (ED) 47, which seeks to delineate a uniform accounting treatment for purchased goodwill, has been criticized for proposing the amortization of purchased goodwill on a systematic basis against earnings through the profit and loss (p&l) account. Many UK corporations are criticizing ED 47 for what they perceive as its negative effect on company earnings: the current practice of immediately writing off goodwill against reserves on acquisition boosts a company's earnings. ED 47 proposes to treat purchased goodwill as a long-lived asset to be depreciated against profit. Purchased goodwill is not an intangible asset but is historically quantifiable and can qualify as a balance sheet asset, and amortization is a logical accounting recognition of the underlying process of goodwill dissipating over time. Critics contend that amortization is not the proper treatment of purchased goodwill for it creates a 'double-charging' effect on a firm's p&l account, but the double-charge reflects the economic reality of the consumption of both purchased and 'home-grown' goodwill.

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Goodwill - the root of the problem

Article Abstract:

The practice of amortizing good will through the profit and loss statement provides no useful information about corporate profitability. This is an arbitrary and meaningless exercise which may well remove subjective judgement from the profit and loss statement, but only complicates the accounting activities involved in mergers and acquisitions.

Mergers, acquisitions and divestments, Valuation, Intangible property, Intangible assets, Assets (Accounting)

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Making earn-outs pay

Article Abstract:

Careful advance planning can often solve many of the problems inherent in earn-out deals which involve the sale of a company on the basis of its future earnings. A case study is described to present how a vendor in an earn-out deal can explore potential tax pitfalls and can develop significant planning points.

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