Financial Accounting - Essay Example

Turnover 21,134 Cost of sales 15,345 Gross profit 5,735 Distribution costs 2,520 Administrative expenses 1,417 Operating profit 1,798 Investment income 80 Finance costs 11 Profit before taxation 1,867 Taxation 581 Profit after taxation 1,286     Profit attributable to:   Parent 1,206 Non-controlling interest 80   1,286     A consolidation schedule is provided Appendix 1. It shows how the figures for turnover, cost of sales and gross profit were arrived at. The Statement below represents the Consolidated Statement of Financial Position of Chambers and Subsidiary for the period ending 2012.

The relevant calculations are shown. . In fact, internally generated goodwill cannot be recognised as an asset while goodwill that has been acquired is recognised as an asset (IFRS.org 2012a). If a self constructed asset is constructed to be used in the business it is treated in the same manner as an acquired asset. However, self constructed assets which are produced for sale as part of the normal activities of a business are dealt with under IAS 2 Inventories. The two assets are not quite comparable as one set is something you can see and touch physically while the other is not.

However, there is no reason why goodwill that is internally generated should not be recognised as an asset. Goodwill is something that a business generates internally, although it can only be recognised when someone acquires it. We are all aware that when a business is sold goodwill is the excess over the fair value of the separable assets that the buyer/acquirer is willing to pay. The fact that someone is willing to pay for it means that they have placed a value on it. That value could be anything and the fact that someone places a value on it and is willing to pay means that it is measurable – whether objectively or subjectively.

Casta et al (2011) indicates that some of the models that have been created to value internally generated goodwill cannot explain how goodwill was created. However, the fact that we know from the definition that goodwill arises from the reputation that has been built up a business over time means that the creation of goodwill can be explained. There are also other factors such as the area in which the business is located; the employees as it relates to their experience, competence, efficiency and reliability; and a host of other factors (Wood and Sangster