Problems and prospects of reflecting goodwill in accounting system and financial reporting
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Date
2015
Journal Title
Journal ISSN
Volume Title
Publisher
Publishing House of Lviv Polytechnic National University
Abstract
Dynamic development of modern entities in information and knowledge economy is associated with
the usage of intangible factors of functioning. It is components of intangible capacity that form information and intellectual resource of the enterprise, determine its competitive position in the market and are the key to efficient operations and the main factor in the formation of its value. However, many components of these informational and intellectual resources often cannot be
clearly identified and objectively measured. For this reason, the existing accounting principles provided by almost all systems of standardization, do not imply the recognition and reflection in accounting and financial reporting of significant amount of information and intellectual assets,
mainly internally generated. These arguments largely explain the gap between the market and the book capitalization of modern companies, especially high-tech ones.. For public companies whose stocks are quoted on equity markets, the value of unidentifiable intellectual assets (capital) can be
set by assessing the value differences determined on the basis of market mechanisms. For other operating entities it is impossible to formalize the internally generated information and intellectual capacity in any way. This is achievable only in cases of merger, acquisition or takeover of a business (the so-called M&A agreements), when the difference between the market value of a business and its book value is taken by the buyer on its balance sheet in the form of goodwill. In fact, goodwill has appeared to be almost the only mechanism of recognizing the value of unidentified information and intellectual assets (capital) in enterprise’s value formalized in public financial reporting. The need for public representation of internally generated information and intellectual capacity of companies determines the timeliness of the research related to modern
developments in accounting.
Description
Keywords
goodwill, intellectual capital, financial reporting, approaches to assessing goodwill, methods of accounting for goodwill
Citation
Yaremko I. Yo. Problems and prospects of reflecting goodwill in accounting system and financial reporting / I. Yo. Yaremko, L. M. Pylypenko, O. I. Tyvonchuk // Economics, Entrepreneurship, Management. – 2015. – Volume 2, number 2. – P. 1–10. – Bibliography: 21 titles.