Goodwill refers to the value that can be obtained higher than the normal return on investment under the same conditions because of its geographical advantages, or because of various reasons such as high operating efficiency, long history and high quality of personnel.

catalogue

1 the essence of goodwill

2 Characteristics of goodwill

3 Classification of goodwill

4 Evaluation of goodwill

5 Accounting treatment of goodwill

6 accounting treatment of China accounting standards

7 references

The essence of goodwill

Goodwill is an objective existence that makes people, money, things and other elements in an enterprise interact with each other in economic activities to form the "best state".

"Ternary Theory" of Goodwill: As for the essence of Goodwill, the authoritative viewpoints are three viewpoints introduced by hendrickson, a famous contemporary American accounting theorist, in his monograph "Accounting Theory", namely, Goodwill Value Theory, Excess Income Theory and Total Valuation Account Theory. These three arguments are called the "ternary theory" of goodwill.

According to the theory of goodwill value, goodwill comes from the good image of the enterprise and the good feelings of customers, which may come from the superior geographical position, good reputation, favorable business position, good labor relations, exclusive privileges and good management of the enterprise.

Because these factors are invisible and intangible, the amount cannot be recorded in the accounts, so goodwill actually refers to the above intangible resources of enterprises, so the theory of goodwill value is also called intangible resources theory.

According to the theory of excess income, goodwill is the part where the present value of expected future income exceeds the normal income. The excess return here should mean that you can get a profit higher than the average profit level of the same industry for a long time. Goodwill is combined with the whole enterprise and cannot be identified separately, but once the enterprise owns it, it will have profitability and service potential beyond the normal profit level. Therefore, its value can only be concentrated through the excess income created by the whole.

Total valuation account theory, also known as surplus value theory. This view holds that goodwill is the total valuation account of an enterprise and the product of the concept of going concern value and unrecorded assets. The concept of going concern value holds that goodwill itself is not a separate interest-bearing asset, but the total value (overall value) of various assets of an entity exceeds the sum of its individual values; Unrecorded assets refer to excellent management, loyal customers and favorable locations.

"Ternary Theory" describes the essence of goodwill from different aspects. Goodwill value defines goodwill from the perspective of assets, but it only lists various characteristics of goodwill, and it is difficult to solve its pricing problem. In addition, it is inappropriate to think that goodwill is an intangible resource that has not been recorded, because according to the current practice, only self-created goodwill is not recorded, while purchased goodwill (consolidated goodwill) is recorded. The theory of excess returns is a popular view. Yan Deyu (1997) once pointed out: "The scientific nature of the excess return theory lies in that this view grasps the basic conditions of goodwill as an asset-economic resources, profit potential and monetary measurement. The shortcomings are: after this viewpoint scientifically characterizes goodwill, the relevant theoretical research fails to keep up, and at the same time, it is interfered by the other two viewpoints, which makes the theory of goodwill characterization itself lack the support of root theory and has a weak guiding role in goodwill accounting. " In addition, goodwill will certainly produce excess returns, but the "excess returns" of enterprises are the result of the joint action of many factors, and all abnormal and non-operating factors must be excluded to avoid distorting the value of goodwill. The theory of total valuation account explains the measurement method of goodwill from the perspective of methodology, rather than defining goodwill. The estimation error of the overall value of an enterprise and the overestimation or underestimation of individual assets will be squeezed into goodwill, so goodwill can easily become a "regulating valve" and bear the influence of all subjective factors.

Core Goodwill Theory: The Financial Accounting Standards Committee (FASB) published the draft for comments on September 7th 1999, and put forward the concept of "core goodwill" for the first time.

FASB believes that goodwill can be described as consisting of six elements: (1) the difference between the fair market value of the acquired enterprise's net assets on the acquisition date and its book value. (2) The fair market value of other unrecognized net assets of the acquired enterprise. (3) The fair value of the continuing business of the acquired enterprise. (4) The fair market value of the expected synergy between the net assets and business combination of the acquired enterprise and the acquired enterprise. (5) The amount overcharged by the acquirer due to the measurement error of the acquisition quotation. Although there will be no measurement error in all cash transactions, it is hard to say that there will be no measurement error if it is a transaction involving stock exchange. (6) The amount overpaid or underpaid by the acquiring enterprise.

1 elements and 2 elements are related to the acquired enterprise, and they are not goodwill in concept. Element 1 reflects the income of the unrecognized net assets of the acquired enterprise, and element 2 only refers to those intangible assets that cannot be recognized separately because they cannot fully meet the recognition criteria. Elements 5 and 6 are related to enterprise acquisition, and they are not goodwill in concept. Factor 5 is measurement error, and factor 6 represents the loss (in case of overpayment) or gain (in case of underpayment) of enterprise acquisition. Only elements 3 and 4 are conceptually part of goodwill. Factor 3 is related to the acquired enterprise and reflects the "over-assembly value" of the acquired enterprise's net assets. It represents the pre-existing self-created goodwill of the acquired enterprise or the goodwill previously obtained from the enterprise merger. Factor 4 is related to the combination of the merged enterprise and the merged enterprise, which reflects the "over-assembly value" created by the merger, that is, the synergistic effect produced by the combination of the merged enterprise and the merged enterprise. FASB refers to points 3 and 4 as "core goodwill".

Other arguments about the nature of goodwill: In order to get rid of the dilemma in the study of goodwill, some scholars put aside the limitations of simple accounting and combined with the theories of other disciplines to analyze and elaborate the nature of goodwill.

Dong Birong (2003) based on the "core competence theory" in the enterprise competence theory, thinks that the core competence is the source of excess income of enterprises, so the core competence of enterprises is the essence of goodwill. Goodwill is actually the external expression of the core competence of an enterprise.

Levin Zong (200 1) holds that enterprises are microscopic organisms in social and economic life based on the biological theory of * * *. This perfect biological mechanism of * * * is not innate, but * * * has bred a "new species"-* * biological resources in its past development process. It objectively dissociates between * * * generating units, which makes * * * generating units interact and adapt to each other, and * * * activates and develops together. Goodwill is the accounting expression of this living resource.

Deng Xiaoyang (2000) and other scholars have investigated the essence of goodwill from the perspectives of jurisprudence, economics and accounting, and finally explained the essence of goodwill with the method of system theory, that is, a synergistic effect.

Characteristics of goodwill

The economic meaning of goodwill is the capitalized price of the difference between the enterprise income level and the industry average income level. It is produced by the good reputation formed by customers, excellent enterprise management, good operating efficiency, monopoly of production technology and natural advantages of geographical location.

Goodwill can create indirect economic benefits for enterprises. It is valuable as an asset because of its beneficial characteristics. It is the capitalized price of the difference between the income level of an enterprise and the average social rate of return. People usually use capitalization rate to reduce the excess return of enterprises to get the price of goodwill. Capitalization rate is actually the rate of return on investment (invested capital), and the excess return of enterprises is the amount of capital that creates this excess return after reduction. Therefore, the price of goodwill should be regarded as capitalized price. The value of goodwill is positive, but it can also be negative when the enterprise loses money or its income level is lower than the average profit level of the industry.

Goodwill is an intangible asset and cannot exist independently. It has the characteristics of dependence, which is closely related to the tangible assets of enterprises and the environment of enterprises. It can neither be transferred or sold separately, nor can it be invested as an independent asset, so there is no separate transfer value. It can only be attached to the whole enterprise, and the value of goodwill is reflected by the overall income level of the enterprise.

According to the theory of unrecorded assets, goodwill is the result of measuring unrecorded assets. Goodwill belongs to self-created intangible assets, and its development cost is difficult to be fully reflected on the books. Moreover, the relationship between its function and its development cost is also very uncertain, and there is no unified standard.

The factors affecting the formation of corporate goodwill are very complicated, and the management level of enterprises plays an important role. Here, the human factor comes first. Because the enterprise has a good reputation, it has won the trust of customers; Or because of strict organization and remarkable production efficiency.

Classification of goodwill

According to the way of obtaining goodwill, goodwill can be divided into purchased goodwill and self-created goodwill. The purchased goodwill refers to the goodwill formed by purchasing method in business combination; Other goodwill is self-created goodwill or non-purchased goodwill.

The theoretical study of goodwill mainly starts from two aspects:

In fact, the essence of self-created goodwill is to examine whether an enterprise can obtain long-term stable income or even excess income in the market competition.

Investigating whether the transaction price in the M&A process is greater than or less than the fair value of the enterprise's net assets is actually to study the essence of outsourcing goodwill. Although there is endless debate on goodwill in theory, the treatment of goodwill in practice is relatively consistent, that is, self-created goodwill will not be confirmed; Outsourcing goodwill is defined as the difference between the price of the purchased enterprise and the fair value of its identifiable assets, and the accounting principle is the same, but the amortization period of outsourcing goodwill is different in different countries (the International Accounting Standards Committee and the Financial Accounting Standards Committee have cancelled amortization treatment and changed to impairment test).

Goodwill evaluation

The evaluation of goodwill is a kind of asset evaluation.

The evaluation method of goodwill depends on the understanding of its meaning. The value of goodwill is reflected by the income level of the enterprise, which belongs to an intangible asset and has strong collection and adhesion. It can only be calculated by the whole method, not by individual items like other tangible intangible assets.

The overall evaluation of goodwill can adopt the capitalization method of excess income and the cutting method.

Accounting treatment of goodwill

Accounting circles in different countries have different views on how to deal with goodwill. Generally speaking, there are three ways to deal with goodwill:

Goodwill is recognized as an asset separately and amortized as an expense within its expected useful life. This view holds that the merged enterprise has incurred excess expenses in order to obtain excess profits in the following years, which shows that the merged enterprise has goodwill. Goodwill also meets the definition of assets. Like other assets, it will play a role in the process of the merged entity generating future income, and it will also be lost. Just like deferred assets such as start-up expenses, they should be amortized regularly to match the excess income obtained, which conforms to the accrual principle and the principle of conservatism, otherwise the profits will be inflated in the future.

Goodwill, as an equity offset item, is written off immediately at the time of merger, directly offsetting the current income or retained income of the merged enterprise. This view holds that the value of goodwill has great uncertainty and cannot exist and be realized alone, and the factors that form goodwill are difficult for enterprises to control. After the merger, goodwill may not survive. For example, due to the development and exploitation of the city, the original superior geographical position may no longer be in an advantageous position now or in the future; Due to personnel changes of key management personnel, the current or future management level may not be as good as before, and so on. If it is classified as goodwill not amortized or amortized in installments, it does not conform to the principle of conservatism. Therefore, the consolidated goodwill should be directly written off with the shareholders' equity of the merged enterprise, that is, the retained earnings, or directly written off with the current earnings of the merged enterprise (the overpaid part of the merged enterprise is used as the expenses related to the merged business).

Goodwill is regarded as a permanent asset and will not be amortized. This view holds that outsourcing goodwill is an asset, because it can bring excess profits higher than the normal profit level to purchasing enterprises during mergers and acquisitions. As an asset, goodwill should be capitalized. The goodwill owned by a successful enterprise will be maintained forever, and its value will not decline. In addition, various expenses incurred in the past production and operation of the merged enterprise have formed unrecorded self-created goodwill. These expenses have been included in the expenses before, offsetting the past income. Now, after the merger, the acquired enterprise amortizes the confirmed goodwill, which leads to double counting of goodwill expenses.

Accounting treatment of China accounting standards

Refers to the accounting of goodwill value obtained in business combination under different control.

Where the goodwill is impaired, the detailed account of "impairment provision" should be set up in this account for accounting, or the account of "impairment provision for goodwill" can be set up separately for accounting.

An enterprise shall debit this account and credit related accounts according to the value of goodwill determined by the criteria for business combination.

On the balance sheet date, if an enterprise determines that the goodwill is impaired according to the asset impairment criteria, it shall debit the "asset impairment loss" account and credit it to the account (impairment reserve) according to the amount to be written down.

The debit balance at the end of this course reflects the value of goodwill purchased by the enterprise.