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#cfa-level-1 #financial-reporting-and-analysis #reading-26-understanding-balance-sheets

Goodwill only has value insofar as it represents a sustainable competitive advantage that will result in abnormally high earnings. Analysts need to be aware of the possibility, however, that the goodwill recognized by accountants may, in fact, represent overpayment for the acquired company. Since goodwill is inferred rather than computed directly, it will increase as the payment price increases. It is only after the passage of time that analysts will be able to evaluate the extent to which the purchase price was justified.

Under U.S. GAAP SFAS No. 142, goodwill is no longer amortized, but is tested annually for impairment. It is not amortized. Impairment of goodwill is a non-cash expense which is charged against income in the current period.

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Subject 2. Measurement Bases of Assets and Liabilities
inferred from the values of the acquired assets compared with the purchase price. It is the premium paid for the target company's reputation, brand names, customers or suppliers, technical knowledge, key personnel, and so forth. <span>Goodwill only has value insofar as it represents a sustainable competitive advantage that will result in abnormally high earnings. Analysts need to be aware of the possibility, however, that the goodwill recognized by accountants may, in fact, represent overpayment for the acquired company. Since goodwill is inferred rather than computed directly, it will increase as the payment price increases. It is only after the passage of time that analysts will be able to evaluate the extent to which the purchase price was justified. Under U.S. GAAP SFAS No. 142, goodwill is no longer amortized, but is tested annually for impairment. It is not amortized. Impairment of goodwill is a non-cash expense which is charged against income in the current period. <span><body><html>


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