The Nature, Contents And Accounting Recognition Dilemma Of Goodwill

It is well known that goodwill is a kind of asset which is extremely abstract. The debate around goodwill last for hundreds of years, and extends to many subjects such as law, accounting, management and economics. The attention paid to this issue maybe caused by the initial interest on distinguishing and protecting goodwill, and then become hardly ignorable by any entity as the development of economy. However, the increasing amount of research works haven`t get enough substantially breakthroughs. The predicament of goodwill theory research nowadays can be totally described in three aspects. The first problem is the degenerateness of goodwill definition theory, which is embodied in"Super-profit theory". More and more research works ignored the core concept of"business connection"that is emphasized by nearly all authoritative scholars in this area, including P. D. Leake who is the mature statesman of"Super-profit theory". The second problem is the dilemma of goodwill identification in accounts. Although an agreement has already be widely reached that"internally generated goodwill"shouldn`t be identified, most countries` accounting standards permit"consolidated goodwill"comes into balance sheet. Is this arrangement reasonable? Or"consolidated goodwill"really can represent those beneficial business connections contains in the entities which has been taken over? Finally, the research of property rights characters of goodwill hasn`t reached substantial breakthrough. Many works that directly using ownership analytic procedure never provide a persuadable result.Among all the three aspects above, the third one is exactly the gap of this paper. Actually, in New Institutional Economics, ownership analysis only used for those material rights and intellectual property rights, both of which are exclusive rights and are called absolute property rights. On the contrary, goodwill is a typical kind of relative property rights that is immaterial and without any exclusive rights, and usually analyzed by contract theory which make up by some careful studies on those contracts contains in business connections. In fact, goodwill is not new for New Institutional Economics. Many famous theory such as"self-enforcing agreement"and"relational contract"all devotes to analysis of long-term business connections, though they don`t particularly pay close attention on goodwill. The core work of this paper is analyzing the general contract structure of goodwill by contract theory, and building a set of corresponding concepts at the same time, which maybe the main point of innovation in this paper.It is worth noting that, finding out the contract structure of goodwill is of great importance, because it can give us opportunity to understand those external characters of goodwill, and also help us to define and classify it. For example, chapter four expressly finds the mess in criterions of five representative goodwill factor lists through three analytic aspects that is generated by the three key factors in goodwill contract structure which is described in chapter three, and then rebuilds a goodwill factor list with sort criterion from"external entities"aspect. Moreover, chapter five put control problem of goodwill into the"control layer", which is the second layer of goodwill contract structure, to make it as important as the value of goodwill, which contains in the first layer called"value layer".In more specific terms, this paper is constituted by three main parts: The first part contains chapter one and chapter two. In this part, relative literature about factors, definitions, generate procedure of goodwill and basic theory about property rights are overviewed, and a definition of goodwill which describes it as"non-binding business connection"is given as the conclusion of the overview above and the start point of further analysis below. Using this definition, some controversial categories are also discussed to see whether they should be included in goodwill or not, such as goodwill and trademark right, goodwill and organizational capital, and so on.The second part of this paper is chapter three. This part starts with a typical case of goodwill litigations between the employer and his employees who actually control the customers data the employer created and leave the company with these data without any permitted. Through this case, the contract structure of business goodwill is described, and a series of corresponding concepts are provided. Finally, these concepts make up a contract structure frame, which contains three key factors( i.e."target resources","information medium"and"external entity"), two layers(i.e."value layer"and"control layer") and other relative concepts. As a supplement, some special form of information medium and its affection to goodwill contract structure are also discussed at the end of this part.The third part of this paper includes chapter four and chapter five. In this part, two practical issues are discussed based on the conclusion of goodwill contract structure from part two, which is"goodwill factor list rebuild"and"the control problem and accounting recognition of goodwill". The former finally provides a new goodwill factor list which is much better than those exist five list in logic and practicability, because it adhere to the sort criterion based on external entity aspect from beginning to end. The latter find that the control power over goodwill mainly depends on the size of actual controllers` organization, and it also can be adjusted by some restrictive measures. Furthermore, goodwill satisfies the requirement of asset recognition of definability, but as far from the requirement of measurability, it is better to be disclosure in footnotes to the financial statements.