A Study On Valuation Of Goodwill Impairment Test Based On Cut Difference Method

With the continuous development of China's economic,political and cultural culture,China has entered a new era.This is not only a period of important strategic opportunities,but also accompanied by severe challenges.It requires us to seize the opportunity to seek development and always guard against potential risks.In the past few years,the market has played a decisive role in resource allocation,and Mergers and Acquisitions have become a weapon for scale layout,accelerated upgrades,and optimized resources.With the deepening of reforms,the economic structure has been further optimized,emerging industries such as the digital economy have flourished,and the M&A market has continued to flourish.The impact of the performance compensation agreement attached to the merger on the goodwill has gradually become more prominent with the year,and the risk of goodwill impairment has gradually expanded,which needs to be highly valued by the market.For enterprises with goodwill,whether the goodwill of the enterprise is impaired is an issue that must be paid attention to when preparing the annual report.The accounting standards of the enterprise stipulate that the goodwill formed by the business combination should be tested for impairment every year,regardless of whether there is any indication of impairment.The goodwill impairment test requires the professional judgment of the accountant on the one hand,and the professional assessment conclusion on the other hand.Since the valuation conclusion has a great influence on the subsequent impairment judgment of the auditors and accountants,the importance of the reasonable goodwill impairment test valuation method and valuation process is self-evident.This paper explores the essence and connotation of the goodwill based on the previous research experience,valuate the main evaluation methods involved in the valuation of goodwill impairment test,including the Excess Return Method and the Cut Difference Method,and deeply explore the relevant issues of the current Cut Difference Method in the valuation of goodwill impairment test,including the unrestricted free cash flow,unreasonable division of income periods,unquantified synergies,and no consideration of the impact on the gambling agreement.Based on the analysis of the problem,this paper improves the Cut Difference Method through limiting the free cash flow,dividing the income periods,quantifying synergy effect,and introducing the “protocol factor”.In the meantime,this paper specifies the key parameters in the Cut Difference Method,including future cash flow,income period and discount rate,etc.,which has practical application value.This paper analyzes the treatment of goodwill impairment of the asset group of Blue Island Marine Engineering Co.,Ltd.with goodwill involved in the goodwill impairment test,and uses the case study method to introduce the basic background.On the basis of December 31,2016 as the valuation base date,the goodwill impairment test is valuated,and the improved Cut Difference Method is used to calculate the value of goodwill in the valuation of goodwill impairment test.The factors,valuation methods,valuation hypotheses and valuation process are obtained from the valuation of the goodwill impairment test to verify the applicability of the improved Cut Difference Method in practical applications.The conclusions of this paper include that the free cash flow to firm should be selected as the basis of the present value calculation of the free cash flow when using the Cut Difference Method,the influence of the synergistic effect on the free cash flow to firm should be quantified reasonably to reflect the synergistic value of the acquired goodwill,and the influence of the bet agreement on the term and discount rate of earnings should be considered.This paper puts forward some suggestions on strengthening goodwill management and promoting the rationality of goodwill evaluation.It is hoped that this paper can improve the theoretical basis of goodwill assessment in China's capital market and provide reference for the improvement of the valuation criteria and practice of goodwill impairment test.