Models to measure goodwill impairment

Gerald Lander and Alan Reinstein

International Advances in Economic Research, 2003, vol. 9, issue 3, 227-232

Abstract: Statement of Accounting Standards No. 142 [2001] superseded the former rules of accounting for amortization of goodwill under Accounting Principles Board Opinion No. 17 [1970]. Entities muxt now recognize annually impairments in the value of the good-will associated with purchased firms, rather than amortizing such expenses ratably over 40 years. This better matching of revenues and expenses provides for more valid financial statements, but also mandates accountants to select proper models to measure such impairment losses. The authors highlight some reasons for the issuance of this new standard, compare and contrast the effects of the discounted cash flows and residual income methods to measure such impairments, and suggest how to develop a conceptual model to adhere to the new authoritative provisions. (JEL M41) Copyright International Atlantic Economic Society 2003

Date: 2003
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DOI: 10.1007/BF02295446

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