New client, small limited company trading for a few years, has Goodwill in B/S. Accounting policy says has indefinite useful life and not amortised.
So, it clearly does not have an indefinite useful life and impairment reviews have not been done as far as I know given the small size of the company.
I want to now correct this and amortise over say 10 years for the sake of argument which the directors think is reasonable. However, it needs to be 10 years from the day it came into existence in the company, say 4 years ago i.e.they accept that when they bought it 4 years ago its life then was 10 years. (Ignoring FRS 102 for this)
Can I just 'catch up' the amortisation charge this year to get it correct meaning the equivalent of 4 years amortisation in this years P&L account OR is this a prior year adjustment restating opening balances etc and just getting one years charge in this years P&L with the same in the comparative and amended opening balance sheets, reserves and so on. Is it one or the other for definite or could it be either i.e. do I have a choice or not? Assuming the charge is deductible for CT, how would this be dealt with if the prior year adjustment route is the correct one?
Thanks in anticipation.
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I don't think this is a change in accounting policy, merely a change to an estimation technique: you've changed the estimated useful life from infinity to ten years. So it's not a PYA. I'd do it as an impairment review to get the value down to whatever you feel is reasonable and then write that off over the remaining number of years.
Personally, though, I wouldn't ignore FRS102 (it'll be here sooner than you think!) and I'd give it a 5 year life unless a longer one can be substantiated. That, though, would mean writing the whole thing off this year, and the client might not want that.
Whether audited or not, company accounts still have to show and true and fair view, and that includes following accounting standards, a fact which is acknowledged in the accounts. A director can't just "decide" that a 10 or 20 year useful life is acceptable. He has to make a "reliable estimate" - in other words, an estimate based on facts and soundly based projections and judgements. Either we follow accounting standards or we don't, and we certainly shouldn't pick and choose which bits we accept and ignore all the rest.
True - isn't it amazing, though, how many people (banks, etc.) place so much reliance on our carefully worded (can't blame me if the accounts are wrong, guv) report?