Study On Goodwill Accounting

Since the concept of goodwill emerged, it has been a controversial topic in accounting academy.Nowadays it is still a tough task faced by scholars and accounting users. Although we haveachieved great and continuing development in goodwill accounting in the last century, themeasurement problem, which is regarded as the core in goodwill accounting, has not been resolved.Besides scholars have been studying almost the whole field about goodwill in different angles, andhave offered theories about the definition, the nature and the composing factors of goodwill andhow to measure it. There is little consensus, however, and the debates are still a regular occurrenceamong scholars. As we know, with the development of society and economics, the connotation ofgoodwill changes accordingly. Due to its complexity and intangibility, we have not got anyessential progress. With the advent of knowledge economy in the 21stcentury, the investment inintangible assets including goodwill has a rapid rise and it also has exerted a strong effect oncomprise value. Financial crisis erupted in 2008 resulted in a new series of global acquisitionswhich required corresponding goodwill theories to satisfy accounting practices.China Accounting Standards issued new accounting standards----Accounting Standards forBusiness Enterprises in February 15, 2006, and set down specific standards for goodwill whichshowed our government’s attention. Goodwill has separated from intangibles and listed on balancesheet as a separate accounting subject. New accounting standards reflected the request of scholarsand accounting users and brought about much more further study. Based on the issue, I spent muchtime on reading literature review on goodwill and put what I have learnt as a postgraduate intopractice by the means of Tobin’s Q to deeply study goodwill accounting.The dissertation consists of six sections:Introduction：This section introduces domestic and international background of the dissertation andthe meaning of research about goodwill accounting. Then research framework, approaches andcontents are followed. The last part is talking about the invention and shortcomings. Chapter 2: This section gives a description of domestic and international theoretical basis ofgoodwill。At the beginning, the author depicts the history of the definition of goodwill. Peoplerealized goodwill was linked to the location of one company, so Preinreich described it asgeographic goodwill. However, with the development of global economics, people have a deeperunderstanding of goodwill and regard it as factors those can create over-average benefits. Chinesescholars also make contributions to the definition of goodwill though we focused on it much laterthan the west. Then the analysis of many standpoints upon the nature of goodwill is taken intoconsideration and viewpoints written by Eldon．S．Hendriksen in Accounting Theory arerepresented. Based on these theories, after considering the advantages and disadvantages, theauthor also adds the newest perspective, synergy effects. As is followed, the resources and thecomposing factors are taken into account though debates from different scholars exist. The end ofthe section is the introduction to the specific measurement methods of goodwill accounting indifferent countries. Goodwill accounting standards set down by governments was a combinationand compromise between theorists and practitioners. Meanwhile, with the pace of transactions in ahigh speed, more and more questions come out. Finally the author names five specific issues aboutgoodwill accounting in order to understand it very well. I consider it necessary to find out feasiblesolutions to resolve them.Chapter3：The content of this section is about the theoretical basis of goodwill accountingincluding recognized principles of assets and expenses and so on. As the core component，thischapter plays a connecting link between the preceding and the following section in structure.Besides it also gives the answer to the five controversial topics in the last chapter and support tothe following discussion in the next two chapters.Chapter 4: This part is about the history of Tobin’s Q ratio and its practices in Financial andAccounting. The relationship between goodwill and Tobin’s Q ratio is also depicted in this section.Chapter 5: The section is the core component of this dissertation. As is known, there is a heated debate about the different measurement method of goodwill. Internally generated goodwill andpurchased goodwill have the same essence, but the former have not got the recognition. Based thisfact, the author attempts to introduce Tobin’s Q to resolve the measurement of goodwill accounting.First Tobin’s Q bridges internally generated goodwill and purchased goodwill which helps toresolve the divergences about the measurement method of the two kinds of goodwill. By the way,it also contributes to deal with the subsequent measurement. Then the database of our listedcompanies is used to verify the feasibility and correctness.Chapter 6: This part is the conclusion of the dissertation. To sum up, internally generated goodwillshould be recognized and measured, and Tobin’s Q is a good method of measuring it. However,with the limitation of my knowledge reserve, there is some defect in my dissertation and I will trymy best to learn more and think it as my future research direction.