Straight line write off of Purchase Goodwill ???

Straight line write off of Purchase Goodwill ???

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The company in question has purchased the assets of another company. This has resulted in Purchase Goodwill of £350k. In terms of accounting treatment it has been suggested that we write off the goodwill on a straight line basis which has been made over the re-buttable estimation of economic life which is 7 years (ascertained by assessment of similar companies in our sector).

It has also been argued separately that the Purchased Goodwill may not have to be written off in this manner, but instead subject to impairment reviews at the end of each accounting period, where it's value could be assessed by a broker or somebody in a similar standing. It was initially understood that the revaluation approach could only be used in conjunction with non-goodwill intangibles?

Could somebody please confirm which approach above is allowable?

Please could you clarify how this purchase goodwill should be dealt with in the correct manner.

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By Paul Soper
14th Jul 2015 22:56

When did the transaction take place?

The budget stymied this sort of transaction but lets assume that the acquisition was completed before budget day.

Under FRS102, in the absence of an economic life, the rebuttle presumption is an estimated life of 5 years (consistent with the EU minimum life of a patent). The relief for this amount is determined by the accounting treatment adopted, so start with the accounting treatment first.

Before FRS102 the treatment was governed by FRS10 and FRS 11 unless International Accounting Standards applied.  Under IAS you cannot write off on a basis consistent with FRS10, you can only make impairment reviews and only if you are satisfied that the impairment is permanent and non-reversible.

From the size of the amount involved I don't think that IAS apply. So it is normal standards and if you believe that the economic life is 7 years then that would seem to be the appropriate period period for the current accounting standards, if adopted. 

If you chose not to write it off then within two years of the end of the AP of acquisition you could elect to take a straight-line write off at 4%pa, equal to a 25 year life.

Start with the accounting treatment and the tax treatment follows unless the IP was acquired before 2002 from a related party, was the subject of a roll-over claim, was acquired for tax avoidance purposes, was acquired after 2014 froma related party or after 8 July 2015 in any event...

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