Financial Accounting (BUSINESS COMBINATIONS/INTANGIBLE ASSETS/LEASES) - Essay Example

Goodwill is recognized under AASB 3 and it arises when a business combines with another business or one of the businesses acquires a controlling interest in any other business. It is recognized by the acquirer as an asset at the date of acquisition. Goodwill is measured as an excess of the cost of business over the net fair value of assets, liabilities and contingent liabilities incurred or assumed at the acquisition date. There could have been several reasons for writing down the goodwill related to New Plan Shopping Portfolio.

It might be due to the deteriorating economic environment or faltering acquired business. It can also be true that Centro Group had overestimated the worth of New Plan Shopping and thus overpaid for it during the time it was acquired and that’s why it is writing down the goodwill. Furthermore, there can be several other reasons leading to write down of the goodwill such as a significant decrease in the market value of the assets or a business climate that adversely affects the value of the assets of the acquired company. d) Prior to adoption of the International Accounting Standards, the accounting treatment was to amortize goodwill.

Contrast this previous accounting treatment of amortization with the current accounting treatment, and explain on behalf of the AASB why the current treatment is superior? Initially goodwill was amortized over a range of period which resulted in financial discrepancies. However, the recent financial standards prohibit the amortization of goodwill but rather they want businesses to check goodwill for impairment at least annually. Amortization of goodwill has serious drawbacks. Firstly, it is difficult to measure the life of a goodwill in which it will be amortized.

Secondly, it assigns a specific amount to be amortized which does not represent the reality of