How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Rakhi Vasavada Your Own Question
Rakhi Vasavada
Rakhi Vasavada, Financial Advisor
Category: Finance
Satisfied Customers: 4543
Experience:  Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
43581946
Type Your Finance Question Here...
Rakhi Vasavada is online now

Goodwill : my company purchased a 22.5% stake in a company

Resolved Question:

Goodwill : my company purchased a 22.5% stake in a company as an investment. The company has no assets initially except cash from inward investment, that it will spend to develop a product. The product will hopefully begin producing revenue after one year. Our accountants have suggested writing off the initial goodwill over 5 years, but how would we justify this time period in theory?
Submitted: 1 year ago.
Category: Finance
Expert:  Rakhi Vasavada replied 1 year ago.

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

As you know, Goodwill is any amount paid over and above in excess of the book value while acquiring a stake in a company or asset.

Your accountant is perfectly correct to say that the same should be amortized over period of time, say five years. There is no need to justify for this. You can straight away do this and it is perfectly within the ambit of GAAP. Section 197 defines intangible assets and Goodwill is one of them.

So, you should not have any problem going around with this.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 1 year ago.
Section 197 from what standard exactly? Does it explicitly say that you don't have to justify the period? That seems to be odd.
Expert:  Rakhi Vasavada replied 1 year ago.

Hello again.

No, I am not saying that. Section 197 does not deal with the period. It just "Defines" goodwill as an intangible asset that can be amortized.

Having said this, Private companies in the United States, however, may elect to amortize goodwill over a period of ten years or less under an accounting alternative from the Private Company Council of the FASB.

FASB - Financial Accounting Standard Board Statement 142 deals with this. You need not justify 5 years. You can choose anything between more than 1 to less than 10 years. FASB Accounting Standards Update No. 2014-02, Intangibles—Goodwill and Other (Topic 350) deals with this. It allows private companies to

use straight-line amortization of goodwill for up to ten years, or less if the company is able to demonstrate an alternative useful lifespan.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Customer: replied 1 year ago.
OK, the issue is that I and my company are in the UK. Do you know if the same applies to IAS? Thanks.
Expert:  Rakhi Vasavada replied 1 year ago.

Dear Friend,

Yes.. Certainly.

All of the standards are aligned with one another to be globally accepted.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question.

Warm Regards,

Rakhi Vasavada and other Finance Specialists are ready to help you

Related Finance Questions