Reference no: EM133674309

Assignment: Goodwill Accounting Paper

Goodwill is reported as part of intangible long-term assets on balance sheets. Recently, accounting for Goodwill has gone through many changes. Among those, the most eye-catching one is elimination of amortization of goodwill for public companies, while many other intangible assets are amortized.

Goodwill Accounting Paper provides an opportunity to think about the effects of elimination of amortization of goodwill on financial reporting. For Goodwill Accounting Paper, each team will read the case and purchase the case), professional articles, and/or academic research papers. Based on those readings and each team's own further research, each team will write Goodwill Accounting Paper using the structure given below. In addition to the reference papers available in Canvas, each team should conduct own further research including but not limited to professional articles, news articles and/or academic research papers, as needed. For reference, I describe what should be included in each section.

Title of each section for the main body of Goodwill Accounting Paper:

I. Introduction

1. What is the objective of your team's Goodwill Accounting Paper?

2. How is your team's Goodwill Accounting Paper structured to support the objective?

II. Recent change in goodwill accounting: Elimination of amortization of goodwill (Refer to Case, SFAS No. 142 in Canvas, and what you studied in ACCT 800 (or ACCT 301), and conduct own research)

1. Briefly explain when goodwill arises.

2. (Address using the case) What was the fair market value of identifiable net assets that Talbots, Inc. acquired from J. Jill?

3. (Address using the case) Why was Talbots, Inc. willing to pay more than the fair market value of the identifiable net assets acquired from J. Jill?

4. Based on SFAS No. 142 and your team's own research, summarize recent elimination of amortization of goodwill including (but not limited to) rationale behind elimination of amortization of goodwill.

III. Consequences of elimination of amortization of goodwill (Refer to Case, SFAS No. 142, and 4 Goodwill readings in Canvas, and conduct own research)

1. (Address using the case) For Fiscal Year 2008 (ending February 2, 2008), make an estimate of the amortization of goodwill if SFAS No. 142 had not changed accounting for goodwill in 2001 and Talbots, Inc. had chosen to amortize goodwill recognized in the purchase of J. Jill over the allowed period of 40 years based on the straight-line method with zero salvage value. Then, compare the amortization of goodwill with the impairment of goodwill actually reported in income statement for Fiscal Year 2008 (ending February 2, 2008).

2. As learned in ACCT 800 (or ACCT 301) and stated in SFAS No. 142, goodwill still needs to be tested annually for impairment, although it is not subject to amortization any more. Discuss effects of elimination of amortization of goodwill on impairment of goodwill.

IV. Elimination of amortization of goodwill and financial reporting (Refer to Case and SFAS No. 142, and 4 Goodwill readings in Canvas, and conduct own research)

1. (Address using the case) Estimate Talbots, Inc,'s net income for Fiscal Year 2008 (ending February 2, 2008) if goodwill had been amortized as in 3 above without the impairment test. Then, compare re-calculated net income or net loss to the net loss actually reported after the impairment of goodwill of $134 millions for Fiscal Year 2008 (ending February 2, 2008). Then, discuss effects of addition of impairment test after elimination of amortization of goodwill on income statements by comparing income statements between before and after SFAS No. 142 (i.e., addition of impairment test after elimination of amortization of Goodwill).

2. ACCT 800 (or ACCT 301) and ACCT 801 (or ACCT 302) textbook defines earnings quality as "ability to predict future earnings and cash flows based on current earnings'". Discuss how addition of impairment test after elimination of amortization of goodwill would affect earnings quality.

3. Discuss whether elimination of amortization of goodwill has made financial statements more useful or less useful. (In addition to the reference papers in Canvas, your team should conduct own research)

V. Conclusion

Describe and reiterate what your team's Goodwill Accounting Paper is about and what the main argument is.