Goodwill

One type of intangible assets that earn a substantial portion of the study, perhaps the greatest compared to the others, is goodwill. What is goodwill? Goodwill is part of the assets on the balance sheet that reflects the excess payment for the assets that the company needs as compared to market value. Alternatively, intangible assets represent a larger amount than the book value paid by a company to acquire another company. Theoretically, the present value of goodwill is the excess profits of an enterprise in the future (Wikipedia, 2008).

Goodwill may arise from the acquisition. Goodwill arising from acquisitions reflect payments made by the acquirer in anticipation of economic benefits to be gained in the future. Economic benefits may result from synergy between the acquired assets. These benefits can also arise from assets that do not qualify for recognition in financial statements, but the acquirer willing to pay. At recorded an acquisition, goodwill is recognized may not reflect on the future economic benefits for the acquirer. This can happen because since the negotiations has been a decline on expectations of future cash flows of the acquired assets.

In the acquisition transaction may occur negative goodwill. If the cost of the acquisition are lower than the acquirer's interest in the fair values ​​of assets and liabilities that can be identified on the date of the transaction, the fair values ​​of non-monetary assets acquired should be reduced proportionately until all excess is eliminated. If the fair value of non-monetary assets are derived entirely, but it turns out there are still residual differences that have not been eliminated, the remaining excess is recognized as negative goodwill and is treated as deferred income. Systematically amount amortized over a period of not less than twenty years. With the passage of time benefits will be reduced goodwill. This reflects the reduced ability of goodwill to contribute to future income. Therefore, goodwill is amortized and recorded as an expense systematically over its useful life.

According to the Principles of Financial Accounting Standards (FAS, 2007), in a goodwill amortized used straight-line method, unless there are other methods that are considered more appropriate in certain circumstances. Goodwill amortization period of not more than five years. If there is a justifiable basis, goodwill amortization period may be longer, but not more than twenty years.

Given the economic benefits and goodwill are the synergies, it is often difficult to estimate its useful life. Factors to be considered in estimating the useful life of goodwill include:
a. Element prediction business or industry concerned;
b. Effect of product obsolescence, changes in demand, and other economic factors;
c. Expected remaining working lives of managers or groups of employees who perform essential business;
d. Anticipate the actions of competitors or potential competitors; and
e. Provisions of laws, regulations, or provisions konstraktual that affect the useful life of goodwill. The balance of unamortized goodwill should be evaluated at each balance sheet date. If there are indications that the amount is fully or partially can not be recovered from the expectations of economic benefits in the future, then the direct part is recorded as an expense in the period. Any impairment of goodwill should not be raised again in the next period. Impairment of goodwill can be caused by various factors, such as unfavorable economic trends, changes in the competitive situation and laws, and regulations. The decrease in cash flow generated can be used as an indicator deciding to declare the occurrence of impairment of goodwill. In these circumstances the balance of goodwill immediately revealed and recognized as an expense.