Unclaimed amortisation of goodwill

Unclaimed amortisation of goodwill

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I have inherited a client from another accountant who has not been claiming the amortisation of goodwill.

The goodwill in question is allowable for tax, having been created post Apr 2002 and purchased thereafter.  It is quite a substantial amount and is estimated to have a useful economic life of 10 years according to the notes on file but no amortisation has been claimed at all since the incorporation in 2006.  The company has made losses so it is my guess that none has ever been claimed in order to preserve the claim for future years and probably to make the balance sheet look a little better than it otherwise would be.

My understanding of the accounting standards is that this isn't really optional and GW should be written off over the 10 year period as stated or that an impairment review should have taken place and (probably) the whole lot should have been written off since the company isn't profitable so it is unlikely that any goodwill remains (or a substantially smaller amount than is currently in the accounts).

I specialise in tax so my knowledge and interpretation of the accounting standards is sometimes a little off but it seems to me like something is not quite right here.

Can anyone advise?

Replies (6)

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By TerryD
20th Oct 2014 15:18

Yes, the Accounting standards are clear - goodwill must be amortised, and it has to be given a nil residual value at the end of its useful life. And if your review indicates that it is of nil value, then you have to write it all off

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By Shepherds CTA's
20th Oct 2014 15:34

I thought so.  Thank you very

I thought so.  Thank you very much.

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By Shepherds CTA's
21st Oct 2014 09:14

Would anyone mind giving me a second opinion on this please?  I have had it disputed by a colleague but I'm pretty adament that my interpretation is correct.

 

Many thanks.

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By johngroganjga
21st Oct 2014 09:37

Yes amortisation and / or impairment of goodwill are, as a matter of accounting policy, mandatory.  So I don't see how there can be a legitimate difference of opinion at that level.

There can be however be a legitimate difference of opinion as to what the useful economic life is, or as to what impairment has occurred.

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By TerryD
21st Oct 2014 09:44

Just look at FRSSE para 6.13: "Goodwill and intangible fixed assets shall be depreciated.....over their useful useful economic lives, which shall not exceed 20 years". And 6.14: "The residual value assigned to goodwill shall be zero." And 6.15: "Useful economic lives shall be reviewed at the end of each reporting period and revised if necessary." FRSSE 2015 is the same, except 20 years becomes 5 years.

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By Shepherds CTA's
21st Oct 2014 09:51

Thank you all.  I think there

Thank you all.  I think there has been some pressure from the client to leave the amortisation unclaimed but I thought there was no real ambiguity here.  Appreciate the advice.

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