By Floyd A Beams; et al
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GAAP treats goodwill and other intangible assets as assets of the business reporting unit, which is discussed in more detail in a later chapter on segment reporting. A reporting unit is a component of a business for which discrete financial information is available and its operating results are regularly reviewed by management. Firms report intangible assets, other than those acquired in business combinations, based on their fair value at the acquisition date. ” GAAP is specific on accounting for internally developed intangible assets: Costs of internally developing, maintaining, or restoring intangible assets that are not specifically identifiable, that have indeterminate lives, or that are inherent in a continuing business and related to the entity as a whole, shall be recognized as an expense when incurred.
Each company transfers its net assets to a newly formed corporation. A corporation becomes a subsidiary when another corporation acquires a majority (more than 50 percent) of its outstanding voting stock. Thus, one corporation need not acquire all of the stock of another corporation to consummate a business combination. In business combinations in which less than 100 percent of the voting stock of other combining companies is acquired, the combining companies necessarily retain separate legal identities and separate accounting records even though they have become one entity for financial reporting purposes.
We calculate the fair value of goodwill in a manner similar to the original calculation at the date of the acquisition. Should such impairment occur, firms will write down goodwill to a new estimated amount and will record an offsetting loss in calculating net income for the period. Further goodwill amortization is not permitted, and firms may not write goodwill back up to reverse the impact of prior-period amortization charges. Firms no longer amortize goodwill or other intangible assets that have indefinite useful lives.
Advanced accounting by Floyd A Beams; et al