Balance sheet change proposed
Wednesday 14 October 1992
The report, which is published by the Institute of Chartered Accountants in England & Wales, suggests a departure from the current practice, under which goodwill - usually the difference between the acquisition price and the value of the assets acquired - is written off against reserves immediately.
It is proposing a move to the US system, where companies include goodwill as an asset on their balance sheets, provided that its existence and value can be justified. But it adds that the value should be written off against profits over its estimated useful life. In no circumstances should goodwill be charged against reserves.
The recommendations come as the ASB is considering its own proposals for goodwill and other balance-sheet asset valuations, which are expected to be issued later this year.
The report suggests that goodwill can be split into three categories: the fair value of separately identifiable intangible assets such as brands or trade marks; the present value of benefits arising from certain situations, such as a monopoly or a barrier to entry; and over or underpayment.
The value of the first two categories should be included in the balance sheet as assets, as long as the company's directors and auditors are satisfied that the amount at which they are capitalised is no greater than the recoverable amount.
But overpayments should be written off against profit, while underpayments should be credited to reserves.
For reasons of consistency, it is proposed that internally created intangible assets should be dealt with in the same way as purchased ones - included as assets and depreciated in accordance with the guidelines.
However, because of the difficulties of determining their costs, the report recommends that such intangibles should be included at the discretion of managers, subject to the approval of the company's auditors.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...