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How is goodwill different from other intangible assets?

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How is goodwill different from other intangible assets? An asset, which has no physical existence such as corporate intellectual properties (patents, trademarks, business methodologies and copyrights), trademarks, patents, software, goodwill and brand recognition are known to be an “Intangible asset”. So goodwill is and is not an intangible asset. Goodwill is a residual, unidentifiable, not separable asset. Intangibles are not that but…. How is goodwill different from other intangible assets

Separate identifiable intangible assets acquired

That is because identifiable intangible assets acquired in a business combination are recognised separately from goodwill [IFRS 3 B31]. An intangible asset is ‘identifiable’ if it arises from contractual or other legal rights or if it is separable [IAS 38 12]. Under … Read more

Customer relationships valuation

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Introduction

Customer relationships valuation is based on valuation model. Here such a valuation model is presented to value customer contracts and the related customer relationship and the non-contractual customer relationships, as per IFRS 3 Business Combinations.

References (to familiarise yourself with the subject):

Customer contracts and the related customer relationships
Non-contractual customer relationships
Order or production backlog

What are the inputs to the model?

Revenue

Revenue – represents revenue from existing customer relationships for existing products. Includes contractual and non-contractual relationships (even those without current backlog or commitments). Separate valuation of a backlog revenue intangible asset can be considered if and when such backlog exists.

The model assumes a “market participant” point of view, … Read more

Asset-based business valuations

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Asset-based business valuationsAsset-based business valuations are one of the most used valuation approaches in accounting. The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach.

When properly applied using consistent valuation variables, all asset-based business valuation approach methods should conclude approximately the same value for the subject business enterprise.

Additionally, when properly applied using consistent valuation variables, all asset-based business valuation approach methods may be used to conclude any of the following ownership interests:

  1. Total business enterprise (i.e., total long-term debt and total owners’ equity)
  2. Total business assets (i.e., total subject entity tangible and intangible assets)
  3. Total business owners’ equity (e.g., all classes of equity)
  4. A
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Identify and separate Intangible assets

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Identify and separate Intangible assets that is one of the most important exercises in a IFRS 3 business combination. The acquirer recognises, separately from goodwill, the identifiable intangible assets acquired in a business combination. An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal criterion. Identify and separate Intangible assets Identify and separate Intangible assets

An intangible asset that meets the contractual-legal criterion is identifiable even if the asset is not transferable or separable from the acquiree or from other rights and obligations. For example:

  1. an acquiree leases a manufacturing facility under an operating lease that has terms that are favourable relative to market terms.

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Change in accounting principles

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Change in accounting principles – There is an underlying presumption that an accounting principle, once adopted, should not be changed for similar events and transactions. A change in principle may be Change in accounting principlescaused by new events, changing conditions, or additional information or experience.

There are two circumstances when a company is required to change an accounting policy. These are:

  • If the change is required by a Standard or an Interpretation; or Change in accounting principles
  • If the change results in the financial statements providing more reliable and relevant information about the effects of transactions (or other events).

IAS 8 19 (b) requires retrospective application (i.e., the application of a different accounting method to previous years as if that Read more

Change in accounting estimate

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Change in accounting estimate – An adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not correction of errors.

Therefore no retrospective restatement of financial statements is needed. The adjustment is recorded in profit or loss in the period it was re-estimated/re-calculated/re-validated.

 

Changes in accounting policies | Correction of errorsChanges in estimates

 

Change in accounting estimate (IAS 8 32 – 39) is an accounting rule which is Read more

IFRS 3 Identify a business

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IFRS 3 Identify a business – An entity shall determine whether a transaction or other event is a business combination by applying the definition in IFRS 3, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. See also the accounting treatment acquisition of a business or asset(s) 

Guidance on identifying a business combination and the definition of a business are as follows:

The definition of a business: An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to … Read more

Adjusted net asset method negative goodwill example

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The adjusted net asset method negative goodwill example is used to value a business based on the difference between the fair market value of the business assets and its liabilities. Depending on the particular purpose or circumstances underlying the valuation, this method sometimes uses the replacement or liquidation value of the company assets less the liabilities.

The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach. This is an example resulting in the recognition of negative goodwill. Other examples are intangible assets and tangible asset.

The valuation expert is again retained to estimate the value of 100 percent of the owners’ equity of … Read more

Adjusted net asset method tangible asset example

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The adjusted net asset method tangible asset example is used to value a business based on the difference between the fair market value of the business assets and its liabilities. Depending on the particular purpose or circumstances underlying the valuation, this method sometimes uses the replacement or liquidation value of the company assets less the liabilities.

The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach. This is an example resulting in the recognition of a revaluation to fair value of a tangible asset. Other examples are intangible assets and negative goodwill.

The valuation expert is again retained to estimate the value … Read more

Adjusted net asset method intangible assets example

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The adjusted net asset method intangible assets example is used to value a business based on the difference between the fair market value of the business assets and its liabilities. Depending on the particular purpose or circumstances underlying the valuation, this method sometimes uses the replacement or liquidation value of the company assets less the liabilities.

The asset accumulation method and the adjusted net asset method are both generally accepted business valuation methods of the asset-based business valuation approach. This is an example showing the recognition of an intangible asset. Other examples are tangible assets and negative goodwill.

An valuation expert is retained to estimate the value of 100 percent of the owners’ equity of … Read more