Goodwill embodies a concept that emphasizes aspects and attributes of business enterprises that account for the market’s intangible intrinsic value. Goodwill suffices during efforts that seek to determine the value of a commercial entity, especially for purposes of sale and merger with another enterprise within the market. In most cases, goodwill entails all attributes supporting and governing its existence with various market forces. Goodwill also involves various aspects of company operations and undertakings that guide its pursuit of survival within the market. For instance, a company may conduct extensive marketing campaigns to bolster its image and popularity within the market.
However, incurring such expenses does not add any value to the exact disposition of goodwill. Various accounting practices apply to goodwill. One such method involves the pooling of interests that conducts asynchrony of books of both merging enterprises to derive a common sheet that reflects their financial disposition and overall orientation about assets and liabilities. This method had numerous discrepancies that involved a gross inability to differentiate between parties involved in a buyout. Under this framework, it was impossible to derive a clear picture or manifestation of the buyer or seller about either enterprise. Through legislative undertakings, the United States does not allow the application of this procedure within its jurisdiction.
Amortization is another form of accounting practice that seeks to govern the determination of goodwill during related business undertakings. However, current legislation in the United States does not allow the application of this procedural framework. Alternatively, it advocates for procedures that institute alterations to the carrying value of the commercial enterprise. This method combines the overall value of the enterprise and deducts all items that manifest as liabilities. According to this premise, the determination of goodwill anchors on the inherent manifestation of fair value and the carrying value of the enterprise. In case of impairment, recording suffices as a separate entity from the company’s book of records. However, all adjustments suffice as recordings in the enterprise’s balance sheet. In the case of insolvency, valuation does not include goodwill values because they are usually inconsequential. Goodwill is a controversial area of concern in contemporary accounting practice because it portends practices that expose companies to unfair practices.
In most cases, there is contention over suitable methods that suffice in determining goodwill. Most experts argue that the loose nature of statutory frameworks makes it easy for unscrupulous professionals to engage in malpractice. This reality necessitates extensive reforms in regulating legal frameworks that define and govern the determination of goodwill about commercial enterprises. Such factors contribute to controversial issues that contribute to challenges in determining and valuing goodwill.
