Case Study On M&A Goodwill Impairment Of Zeus Entertainment Co.,Ltd.

Since 2014,China has vigorously supported the M&A of enterprises to optimize the allocation of resources and promote the upgrading and adjustment of industrial structure.In the capital market,the scale of M&A continues to expand,the book value of goodwill of listed companies continues to accumulate,and the risk of goodwill impairment has become a problem that can not be underestimated,among which the game industry and other light asset industries are the most prominent.Continuous M&A has become a common way for many companies to enter a new game market or expand their own scale.According to the current accounting standards,M&A projects with high premium and overvalued value have usually recognized high goodwill.However,once a large amount of goodwill impairment provision is made in one time,it will not only seriously affect the performance of the companies and lead to huge losses,but also become a huge hidden danger that impacts the stock price of the company and interferes with the order of the capital market.There is still a lot of space for research and discussion on goodwill and goodwill impairment issues.Based on the above background,this paper takes Dalian Zeus Entertainment Co.,Ltd.as the research object,using the method of case analysis,to find out the problems in the process of its goodwill impairment,and to explore the specific causes of goodwill impairment.Firstly,The paper reviews and combs the relevant theories,the domestic and foreign literature of goodwill and goodwill impairment to lay a theoretical foundation for its writing.Then,the paper introduces the case of Zeus Entertainment Co.,Ltd.with one-time withdrawal of huge goodwill impairment,describing the formation,impairment process and economic consequences of its huge goodwill,and itis found that there are some problems in the process of accruing goodwill impairment of Zeus Entertainment Co.,Ltd.,such as improper division of asset groups in the impairment test,untimely accruing goodwill impairment,and insufficient disclosure of information related to goodwill impairment,and finally the company took an extreme action of one-time accruing large amount of goodwill impairment.Lastly,through a further analysis,the paper summarizes that the causes of the behavior of withdrawing goodwill impairment by Zeus Entertainment Co.,Ltd.,mainly including the following three aspects: First of all,at the initial recognition of goodwill level,the methods of underlying assets value evaluation which was taken by Zeus Entertainment Co.,Ltd.is not reasonable enough,the fair value component of identifiable net assets was not recognized enough,the merger consideration payment method held the risk of increasing goodwill,and all of these three factors worked together to make Zeus Entertainment Co.,Ltd.confirmed such high goodwill.Secondly,high concentration of corporate control provided the possibility for Zeus Entertainment Co.,Ltd.to conduct frequent and radical high premium merger and acquisition,which led to the huge risk.Thirdly,the earnings management motivation of the merged party led to a sharp decline in the profits after the performance commitment period,which put down the profits of the acquirer,resulting in the impairment of goodwill.At the same time,when facing internal and external pressure,the acquirer had the motivation of earnings management to withdraw a large amount of goodwill impairment at one time,which created conditions for turning loss into profit in the future.In view of the problems in the process of withdrawing goodwill impairment and above analysis of the causes of the huge goodwill impairment of Zeus Entertainment Co.,Ltd.,this paper suggests that,first of all,we should regulate the initial recognition of the goodwill,and introduce the standard of the underlying asset value evaluation and the criterion for identifiable net assets for the characteristics of the emerging light asset industries,such as the game industry.At the same time,the supervision of the third-party evaluation institutions should be strengthened;Secondly,we should change to a new method to complete subsequent measurement of goodwill,to improve the quality of accounting information,which could be systematic amortization withimpairment test playing a supporting role.What's more,we need to strengthen internal and external supervision and improve the disclosure requirements of relevant information,and punish enterprises that fail to disclose as required.