Goodwill is the difference between the value of a business as a whole and the aggregate of the fair values of its separable net assets. Separable net assets are those assets (and liabilities) which can be identifiable and sold off separately without necessarily disposing of the business as a whole. They include identifiable intangibles such as patents, licences and trade marks. | Revise lecture 11 1 Revise lecture 11 The nature of goodwill Goodwill is the difference between the value of a business as a whole and the aggregate of the fair values of its separable net assets. Separable net assets are those assets (and liabilities) which can be identifiable and sold off separately without necessarily disposing of the business as a whole. They include identifiable intangibles such as patents, licences and trade marks. 2 Revise lecture 11 Fair value is the amount at which an asset or liability could be exchanged in an arm’s length transaction between informed and willing parties, other than in a forced or liquidation sale. 3 Revise lecture 11 Goodwill may exist because of any combination of a number of possible factors: Reputation for quality or service Technical expertise Possession of favourable contracts Good management and staff 4 Revise lecture 11 Purchased and non-purchased goodwill Purchased goodwill: Arises when one business acquires another as a going concern Includes goodwill arising on the consolidation of a subsidiary or associated company Will be recognised in the financial statements as its value at a particular point in time is certain 5 Revise lecture 11 Non-purchased goodwill: Is also known as inherent goodwill Has no identifiable value Is not recognised in the fianncial statement 6 IAS 38 Research and development (IAS 38) 7 Research and development (IAS 38) Definitions: Research can be defined as original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding 8 Research and development (IAS 38) Definitions: Development can be defined as the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use. 9 Research and development (IAS 38) Accounting treatment of research and development Where a | Revise lecture 11 1 Revise lecture 11 The nature of goodwill Goodwill is the difference between the value of a business as a whole and the aggregate of the fair values of its separable net assets. Separable net assets are those assets (and liabilities) which can be identifiable and sold off separately without necessarily disposing of the business as a whole. They include identifiable intangibles such as patents, licences and trade marks. 2 Revise lecture 11 Fair value is the amount at which an asset or liability could be exchanged in an arm’s length transaction between informed and willing parties, other than in a forced or liquidation sale. 3 Revise lecture 11 Goodwill may exist because of any combination of a number of possible factors: Reputation for quality or service Technical expertise Possession of favourable contracts Good management and staff 4 Revise lecture 11 Purchased and non-purchased goodwill Purchased goodwill: Arises when one business acquires another as a going .
