Methods of accounting for goodwill
Course:- Managerial Accounting
Reference No.:- EM13488622

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Quotient Enterprises acquired the assets of Limited Company during the cur- rent financial year. The acquired assets had a fair market value of $222 and were purchased for $1,050. At the end of the current financial year, Quotient's consolidated total assets (including the $222, but not goodwill) amounted to $2,779; stockholders' equity was $1,958. Consolidated income for the current financial year (ignoring any potential goodwill amortization) is $361. Quotient's accountants are preparing the financial statements for the current financial year and wish to know how alternative ways to account for goodwill potentially affect the income statement and balance sheet. Management is concerned with how certain financial ratios will "look" to investors and financial analysts under the alternatives.

1.What are the different internationally permitted methods of accounting for goodwill, including permitted amortization periods?

2. What are the amounts of total assets and stockholders' equity under each permitted alternative? What are the income amounts under each permitted alternative?

3. Under each alternative, what are the ratios of (a) net income to total assets and (b) net income to stockholders' equity?

4. Does the international diversity in accounting for goodwill affect a company's relative competitive advantage in making business acquisitions? Explain.

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