Goodwill

CFA Level I
#1

When an analyst remove Goodwill from Assets, which other account in the balance sheet is affected?

#2

kochunni69 Wrote: ------------------------------------------------------- > When an analyst remove Goodwill from Assets, which > other account in the balance sheet is affected? good question!!!

#3

I think it would have to be deducted from equity. I can’t imagine any circumstances under which it would affect liabilities. As far as which specific equity account, my best guess would be retained earnings. -Stillwagon

#4

reserves

#5

I think it should be retained earnings (common equity). Since adjusted assets are lower and liabilities remain the same it implies that the book value of equity is also lower. Anway, when you have to make adjustments to the balance sheet the equity part is almost always the adjusting variable… See available for sale securities and/or swaps.

#6

when you say reserves… did you mean retained earning?

#7

kochunni69 Wrote: ------------------------------------------------------- > when you say reserves… did you mean retained > earning? Yes if the company has it, otherwise other capital reserves

#8

It has to be taken out of retained earnings, because when goodwill was acquired its value was recorded as asset and equity at the same time. So to take it out, you remove it from assets and remove it from equity as well.

#9

Thanks Dreary! Having no accounting background, I am still struggling with the basics

#10

The only way to take out goodwill is by impariment. impairment hits IS as an expense. hence lowers your net earnings, so yeah either a DTL, or a reduced NI.

#11

Thats a good analysis Pep. Thanks.

#12

Pepp? A DTL? WHere’d that come from?

#13

Dreary Wrote: ------------------------------------------------------- > It has to be taken out of retained earnings, > because when goodwill was acquired its value was > recorded as asset and equity at the same time. So > to take it out, you remove it from assets and > remove it from equity as well. So, lets say you buy a bulding for $100. Can you tell me the item moved in the balance sheet?

#14

mcf Wrote: ------------------------------------------------------- > Pepp? A DTL? WHere’d that come from? whoa… did i just say DTL. ignore!!! i am losing my mind.