FRS 10 deals with accounting requirements of goodwill and intangible assets. The standard itself recognises that goodwill obtained during an acquisition is not an asset, like other assets, nor is it an immediate loss in value, explains Steve Collings.
Instead, the standard recognises that goodwill is essentially the difference between the cost of an investment shown in the acquirer’s financial statements and the values that have been attributed to the various assets and liabilities subjected to the acquisition in the consolidated financial statements and is referred to in the standard as ‘purchased goodwill’. Purchased goodwill can be positive, whereby the acquisition cost exceeds the aggregate fair values of the identifiable assets and liabilities; whilst negative goodwill arises when the purchase consideration is less than the fair values of the identifiable assets and liabilities.
The objective of FRS 10 is to ensure that goodwill and intangible assets capitalised in an entity’s balance sheet are charged to the profit and loss account over their useful economic lives. The standard then goes on to say that its objective is also to ensure that users can determine the impact that goodwill and intangible assets has on the financial position and performance of the reporting entity.
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- Classes of intangible assets
- Recognition and measurement
- Useful lives and amortisation
- Impairment issues