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3. Over The Years Document The Prescribed Standards For Accounting For Goodwill And The Theories That Underlie Each Of The Prescribed Treatment

843 words - 4 pages

The issue of accounting treatment for goodwill was beginning during the year 1880-1929. The accounting of goodwill was emerged when the form of business was changed from sole proprietorship to corporations as according to Hughes, The development of goodwill was paralleled with the development of business enterprise. (As cited by Garcia, 2006) During that period, the useful life of goodwill has become a major accounting issue. Dicksee claims that goodwill was a permanent asset in balance sheet and an asset that is undesirable to retain, thereby he proposed to immediate write off to capital. (As cited by Garcia, 2006) However, there are some writers who support the conservative approach which ...view middle of the document...

(Garcia, 2006) In addition, this method was used to account for business combination when two separate entities merged into one. It was accepted by the SEC at first, but later on members of accounting profession found that the pooling has had abolishing the accounting principle. (As cited by Garcia, 2006) As a consequence, the historical cost approach has strongly established and remained dominant in US until 2001. The method that write-offs of goodwill to retained earnings cannot be used during this period as it is prohibited by Opinions of the Accounting Principles Board No. 9.
During the period of 1973-2001, the accounting treatment was gradually switch from historical cost basis to fair value which is the balance sheet approach when Statement of Accounting Concepts No.7 was issued by FASB in 2000. (Garcia, 2006) However, the debate regarding the accounting for goodwill was continued due to lack of compromise until the SFAS no.141 was adopted. This standard was favor to impairment test than the amortization method. This standard was supported by Chauvin and Hirschey on the ground of consistent with the results of internally generated goodwill has an effect over a firm’s market value. (As cited by Garcia, 2006) Lastly, the permanent retention method has gained the dominant position for accounting of goodwill at that period because it was consistent and supported by the framework.
Subsequently, beginning on or after 31 March 2004, IFRS for accounting treatment for goodwill have been applied prospectively. In accordance to IFRS 3 , amortization of goodwill is not allowed because the consumption pattern of the...

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