International Accounting

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Goodwill as an object of accounting: the background

Vol. 18, Iss. 2, JANUARY 2015

Available online: 20 March 2015


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Pages: 12-20

Kuzubov S.A. National Research University Higher School of Economics, Moscow, Russian Federation

Importance Among the major accounting problems yet to be solved, accounting for goodwill is the most controversial and, therefore, requiring priority attention issue. The subject of the article is a historical overview of the origin and development of goodwill as an accounting object.
     Objectives The purpose of the study is to analyze historical experience in the form of perception of goodwill as an accounting object, to identify historical patterns suitable for improvement of the modern accounting theory and practice.
     Methods The works of distinguished domestic and foreign scientists on bookkeeping and accounting served as the methodological basis of the study. The authenticity of my findings is confirmed by the logical use of scientific methods, i.e. historical-and-comparative, historical-and-typological and historical-and-system methods.
     Results In the paper, I researched the ways of historical evolution of the goodwill as an object of accounting. I tracked the transformation of ideas about goodwill in foreign literature of the 19th and 20th century. I considered a variety of approaches to the definition of goodwill, the choice of valuation and accounting methods. I also characterized the main theories of goodwill accounting (the excess profit theory, the momentum theory, the dynamic and actuarial schools' theories). Finally, I identified differences in approaches to the concept, valuation method and accounting treatment of goodwill in English-speaking countries (United States, United Kingdom), in continental European countries (France, Germany), and in Japan. The research results may be useful for educational, methodological and scientific activities, and are intended for general reader, including scientists, students, bachelors, masters, postgraduates, and teachers interested in this subject.
     Conclusions and Relevance I conclude on a gradual and cumulative process of development of the goodwill theory, which is still in search of more perfect models of accounting treatment. The findings are relevant, as they enable to uncover the reasons of accountants' reluctance to adopt new practices and ideas (i.e. IFRS 3), combined with their hesitancy to stop considering goodwill as a mere difference or a balancing item. The article proposes to move from the 'top-down' to the 'bottom-up' approach for faithful representation of goodwill.

Keywords: goodwill, intangible assets, business combinations, amortization, valuation, write-off


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