1. UK approach for goodwill accounting ( Data taken from the PDF sent by U) not yet completed, need to be done
The Gidden's structuration theory will researches the social structure of the accounting for purchased goodwill and the related social action of applying submission with that structure. In this case goodwill from the year 1989 to 2004 is studied using the accounting standard FRS10 which made rigid change from goodwill non-asset to goodwill asset. Initially the UK has followed certain accounting standards for the purchased goodwill is ASB, ASC, ED47, ED52 etc. The new accounting standard IFRS10 which is an accounting standard used for Merger and Acquisition has been adopted which made changes the way goodwill is considered. The main feature of this theory is duality of structure. This is three elements structure which is used as a tool to highlight the dominance of rules based approach when compared to principles based approach (Christopher Bryant G A and David Jary, 1997). The structure mainly represents significance, legitimation and dominance. Significance is represented by three phases which are interconnected with each other. Significance structure gives a communication of the financial information to investors. This makes meaning for the social action. The social structure consists of principles and rules which is an intellectual make that has be developed to honor decades of custom and practices. The link between the social structure and social action has been developed such way that it can give consistency of extent in any financial communication. This link is known as interpretive schemes which contain accounting policies for the consistency of transactions based asset coverage. The Significance is a recursive cycle. If the communication of financial meaning is basis of multiple measurement bases then the regularity of the interpretive scheme by the time can be challenged and can be changed. These changes can be restrained since the interpretive schemes have to been adopted to include readily to market values or can switch from goodwill non-asset to goodwill asset. Significance structure generally points to the mixed measurement bases of accounting which are proposed to apply to assets for identifying the goodwill asset as difference between the purchase cost and fair value of the separate assets developed. When the measurement of the purchased goodwill is based on the mixed measurement aspects of the principles based significance structure. The transactions based interpretive scheme is one of the divisions of the measurement bases in total and will become variable over time in communicating real term values as any other measurement basis (Zahirul Hoque, 2006). This defines the expenses as intangible assets such as advertising, marketing expenditure, software, brands etc. The interpretive scheme is not applied to internally generate intangible assets. The concept of goodwill as an asset is similar despite it is been purchased or internally generated one. The purchased can be constantly measured in case of purchased than internally generated. The accounting concept can be reliable measured using the accounting standards. Accounting communication in value of purchased goodwill is naturally selective and also irregular. Thus recursive cycle of the significance depends upon the quantity of common support. So there is nothing in standard to stop the use of mixed measurements in the communication of the financial information to society. Since there is struggle how to apply interpretive scheme. So, these situations made it important for the Board to legitimate its point of view in the hearts of society as being better one to consequently accept in the application of its accounting rules (Aloonr Bhimani, 2006). The Legitimation will relate to the morality of social structures. It is principles based social structure which is an honorable establishment to the communication of financial information. The morality can be defined in terms of personal and shared values. It is a practical social structure which is made real by documents and institutional based process that creates official what is legitimate or illegitimate behavior. This social structure is arbitrated during accepted norms of behavior. The norms of behavior will specify the mutual rights and moral obligations of the social workers. In case if the obligations are not encountered, sanctioning may be applied. The norm of accounting behavior has to follow accounting FRS10 rules first which also supports the interpretive scheme too. So the identification of the intangible assets on the extended of their discoverable market value is still transactions based. Goodwill won't be measured and exposed independently of the transaction to acquire a business. Thus the word 'purchased' goodwill only bars internally generated goodwill. The brands were capitalized by an alternative of companies before the introduction of FRS10 but their values are limited by total transactions based quantity of purchased goodwill from which they were extracted (Cynthia Jeffrey, 2005). Hence legimitation structure is nothing but a compliant performance that is positive punishing of social structure. But this does not deal with claim that the hazard of punishment is usually quite sufficient to also guarantee complaint behavior that is a negative sanctioning. It is said that in order to avoid punishment to lead the process of moral analysis the threat of punishment has to potentially hit managements like finance directors both personally and professionally. This Legitimation is also a recursive cycle with legitimation structure, Norms of behavior and Sanctioning. These deals with professional standards like personal and shared. Moral obligations to follow certain rules of accounting like licenses and prohibitions and referrals and rulings of the Financial Reporting review panel. In other words there is yet impossible to make up dispute following a Panel ruling or sanction. So the power must be practiced by the Panel or Board to enforce the financial truth. Domination is nothing but a power which represents the new version of accounting with truth and fairness called as dominance structure. Cooper and Sherer have been broadly confirmed by complaint social action and the resources which are nothing but allotment and authoritative resources are applied to the processes of enforcement. Power is to effect and straight fulfillment with rules and principles of accounting.
- Christopher Bryant G A and David Jary (1997) Anthony Giddens: critical assessments, Taylor & Francis Publications, pp.1742.
- Zahirul Hoque (2006) Methodological issues in accounting research: theories, methods and issues, Spiramus Press Ltd Publications, pp.538.
- Aloonr Bhimani (2006) Contemporary issues in management accounting, Oxford University Press Publications, pp.447.
- Cynthia Jeffrey (2005) Research on Professional Responsibility and Ethics in Accounting, Emerald group Publications, pp. 229.
Analysis on Johnson Company and Acquisition Inc completed
Johnson is the manufacturing company provides various products. It has been purchased by Acquisition Inc. While merging accounts of Johnson Company are identified by Acquisition Inc in order to merge. The organizations while dealing with assets and liabilities uses different standards developed by IASB and FASB. Here by purchasing Johnson Company by acquisition Inc it uses accounting statements 141 and 131 which are given by FASB. This section discusses about merging of Johnson Company and Acquisition Inc and shows their accounting by merging.
Purchase records of Johnson Company with Goodwill
Goodwill is calculated when one organization merges or purchases other organization. When a company is purchased, a thorough evaluation should be made in order to determine fair values of company's assets and liabilities. Here goodwill is calculated when one company purchased by another company. After merging in order to carry out preacquisition inspection the purchaser have to request permission from Sellers Company. This review decides that all assets and liabilities are recorded in a proper way. Here the book values indicate the fair values of current assets. The fixed and intangible assets are recorded with cost less and estimation of depression has little to do with fair value. The intangible assets may be of customer liabilities, its brand name and rent agreement. Some of the liabilities in organizations may not be considered while representing fair value of the organization because the fair value changes with change of interests. While merging the purchased company have goodwill on book. Here while merging existing goodwill is ignored and it records goodwill which is caused by current purchase. As by using book value the purchaser can uses independent consultant for estimating the fair values for individual assets (Edmund L. J., 2000). This estimation of fair values is first considered while determining the amount which has to be paid for whole company.
Here it is considered about Acquisitions Inc. has merged with Johnson company. Before purchasing Johnson Company its assets and liabilities have to be considered. The current assets and liabilities have to be considered while merging with any company. The balance sheet of Johnson Company is given by its current Assets and liabilities.
Here we consider that the price paid to seller for total net assets and liabilities is $ 250,000. The direct acquisition cost is of $10,000 is added to total purchase price. Then the total price is $36,000. As per the statements 141 given by FASB organization, goodwill is considered only if the price paid is more than the fair value of different net assets including intangible assets which do not exists on books of selling company. From the above discussion it can be given that the fair value for net assets is $ 297,000. Thus at price $260,000, goodwill is $37,000, the excess.
Entry to Record the purchase
Let assume that Acquisition Inc. has purchased John Company net assets with the payment of $250,000. This payment can be made in cash or by providing stock to Johnson Company. For this analysis, here it is assumed that $250,000 is paid to Johnson Company and it also paid another $10,000 to independent attomeys and to accountants for direct acquisition cost. Then the records maintained after purchase is given as
Here the fixed and intangible assets are recorded with estimated fair value without any decrease in value. In case of any adjustments in payments premium are used if necessary. This premium is used in order to show legal records.
In general, purchasing is done is done by sharing common stock with other company. By this companies can conserve their cash and borrowing abilities in future. In this case of Acquisition Inc and Johnson Company, here it is assumed that in case for cash payment Acquisition Inc will provide $1 per value of share with the fair value of $50 per share. Thus acquisition Inc would provide 5,000 shares which are given by $250000/ $50. The journal entry for this purchasing of shares is given as follows. The main difference between the above table and this table is that the purchasing is made through cash and shares.
The cost of issue from insurance of stock is not included in purchase cost of the company. The issuing cost is subtracted from the total amount assigned for stock issued. These issue costs is recorded in a separate table in order not avoid confusion with the total amount of company purchased. As represented in above table the issues cost is $5,000 then the entry is given as
In addition to the above information, the following information also has to be included in notes of financial statements o the acquired company from the purchase time period
- The name and description of the purchased company and its percentage of shares should be specified
- Reasons for purchasing and factors that led to recording of goodwill
- The time period for which the financial reports are recorded
- Include the cost for which the company and the stock issued as payment, and the amount allocated for each share
- All agreement should be disclosed like payment agreement, commitments, and various accounting methods used.
- The amount used for R&D purchased and written obtained during this purchase period
- Goodwill related to each reporting segments are recording by considering the FASB statement No 131.
- The amount of acquired goodwill used for deducting tax
When the obtained goodwill is important with respect to other assets which are obtained and disclosures are also required as
Pro Forma Income Disclosure is important when purchasing of company occurs. This disclosure provides constancy between current and prior period of purchase. Pro forma disclosures are made for the operations results of current period and also for the immediate period if the statements for comparative are shown.
Accounting For the Purchase by The Selling Company
Thus, Johnson Company left with cash and the stock is received is distributed to its shareholders and to close down operations (Paul Marcus Fisher, William james Taylor and Ruta hartung cheng, 2007). Hence from the above accountings it can be understood that purchase of Johnson Company provides benefits for it. By this the seller Johnson Company has gained about $202, 000. Thus, this mergers and acquisition values are analyzed and identified using the standards set by FASB organization.
- Paul M. F., William J. T. and Ruta H. C. (2007) Fundamentals of Advanced Accounting, Cengage Learning Publications, pp. 678.
- Edmund L. J. (2000) "Business Combinations: America's Most Popular Business Activity, Bringing an End to the Controversy", [internet] available at URL: <http://www.scribd.com/doc/7603467/Advanced-Accounting#fullscreen:on>, [accessed on 4th May 2010].
International Accounting Standards Board (IASB) completed
International Accounting Standards Board (IASB) is accountable for developing the international accounting standards (IAS). The main aim of IASB is to develop the global accounting standards. The international financial reporting standard (IFRS) is being developed by IASB. All the statements of IASB are issued by board committee members from different countries with different languages. The accounting standards are essential for each and every organization as most of the organizations deal with multiple countries to increase their business. The accounting standards if IASB are controlled by International Accounting Standards Committee (IASC). It supports the standards developed by IASB. The members of IASB are responsible for the growth of IFRS (Steven M.B., 2002). Accounting standards are the statements which show how the transactions reflect the financial purposes of the business. Many countries coordinate with IFRS. Both IASB and IFRS are useful for accounting purposes in business. There are many standards for IFRS which have been changed rapidly based on the changing environment and the requirements of the users. The first-time adoption of international financial reporting standards develops different accounting policies. The accounting policies specify all the information related to accounting. By the year 2001, there are 8 standards of IFRS which are developed by IASB. The IAS 8 standard specifies the accounting policies that is the changes occurred in accounting estimates and errors. The IAS 16 derives property, plant and equipment. The IAS 21 standard indicates the effects of changes in foreign exchange rates. The different set of standards of IFRS is IFRS1, IFRS2, IFRS3, IFRS4, and IFRS5 in which IFRS2 standard indicates the share based payment, IFRS3 indicates the business combinations and IFRS4 indicates the insurance contracts. The IFRS1 standard is the first-time adoption of international financial reporting standards and the main objective of this standard is that it executes different set of procedures of which the entity must follow these standards (Peter W. Axel H. and Bernard R., 2003). The IAS28 standard specifies the accounting for investments in associates. An associated organization has the capability to show its effect on financial decisions of the organization. This standard considers the goodwill as an asset that is the difference between the amount and fair value of net identifiable assets. The IAS 21 standard indicates the effects of changes in foreign exchange rates. This standard shows the difference between foreign entities. Based on the type of organization, the IAS 21 standard translates the financial statements of one type of currency into another type of currency. This standard is much useful in goodwill accounting purposes as the financial matters are much considered in accounting for goodwill. The IAS7 indicates the cash flow statement standard. IASB incurs these financial statements in this standard. It standardizes the methods in cash flow statement (Tiffany B., 2007). The cash flow statements are utilized with the help of two different methods. They are direct method and indirect method. The direct method shows the exact information about the financial time that is the inflows and outflows of the organization. The indirect method represents the net cash flow from the net income. The IAS7 standard makes use of only direct method and so it is sued in goodwill for accounting. Even in the goodwill also the direct method is used. The IAS 8 standard is the basic errors and modifications in accounting policies. This standard shows the exact differences between changes in estimates and accounting policies. Goodwill is using these standards to increase the effectiveness and productivity of the organization. Based on the requirement of the organization the types of standards are used. The segment information is the IAS 14 standard. The main aim of this standard is to render the relevant information about the business to the users who are utilizing the resources of the business. All the information is presented on combined statements that make the users to understand the information. The information is divided into different segments. This standard is used in goodwill accounting when the users of the organization are in the need of any information (Abbas A.M., Graham J.H. and Magnus O., 2006). Goodwill affects the economic growth of the organization. The related party disclosures constitute the IAS 24 standard deals with the information relating to the users who shows their influence on the organization. This party not only deals with the subordinates of the organization but also with the shareholders and directors of the organization. This standard provides the related information about the financial statements of the organization. The IFRS 2 standard is the share based payment. This standard is issued by IASB. The main aim of this standard is to render the financial reports when a particular transaction takes place in the organization. The IFRS 4 indicates the insurance contracts. The main aim of this standard is to specify the financial reports of insurance contracts. This standard is implemented on accounting for goodwill to represent the insurance aspects of the organization. The IASC established an IAS 15 standard which designates the effects of changes in prices (IASB, 2009). Thus the above illustration it can be estimated that the IASB is the international accounting standard which is used to develop the IFRS policies and procedures for financial purposes. The IFRS is dependent on IASB for its growth in the business. Now-a-days most of the organizations are making use of this IFRS standard to increase the productivity. In goodwill accounting also these standards are implemented for the financial purposes. Different accounting policies which are developed in IFRS are used in goodwill. Based on the necessity of the users and new technology changes are made in the standards of IFRS. There are different set of standards which are implemented in the organizations. They are IFRS1, IFRS2, IFRS3, IFRS4 and IFRS5. These standards are developed by the IFRS with the help of IASB. The standards IAS 8, IAS 21, IAS 16, IAS 28, IAS 7, IAS 24 and IAS 15 are also set up with the requirements which are used in goodwill. Thus the goodwill makes use of all these standards based on the requirement of the organization.
- Steven M.B. (2002) Accounting reference desktop, John Wiley and Sons publishers, pp.615.
- Peter W. Axel H. and Bernard R. (2003) International accounting 2nd edition, Cengage Learning EMEA publishers, pp.521.
- Tiffany B. (2007) "IFRS: Accounting Standards" [internet] available at URL :< http://gaap-standard-accounting-practices.suite101.com/article.cfm/ifrs_accounting_standards> [accessed on May 1st 2010].
- Abbas A.M., Graham J.H. and Magnus O. (2006) IFRS: International Financial Reporting Standards workbook and guide, John Wiley and Sons publishers, pp.389.
- IASB (2009) International financial reporting standards, Kluwer publishers, pp.2880.
Financial Accounting Standard Board (FASB) completed
FASB is the abbreviation for the Financial Accounting Standards board. FASB have interchanged the accounting principles and its procedures in accountants in United States. This standard board is founded to determine the standards in accounting, informing the guidance for financial users, educational purposes and other people. It provides the information related to the financial accounting. FASB strives hard for developing the standards in financial accounting and reporting for various countries, these standards are introduced to make changes in business methods in India and other countries for their economy. The standards from FASB has resulted better change in quality, accounting standards and this can lead to integrate the business standards from different places and maintains the financial reporting standard (Judith W., 2008). FASB has developed a standard for accounting in the industries known as Generally Accepted Accounting Principles (GAAP). This GAAP is most important for US business criteria. This mainly works to determine the various accounting standards of public industries. It is the collection of the procedures, processes and methods used in accounting. These standards are applied in any industry or company in private sector. Many industries in America follows GAAP standard and it was set by the FASB in accounting. Depending on principles it will introduce the rules for accounting where these principles bring out the reliability, comparability and consistency. The financial accounting information has to be properly assured for the user who measures the statements and make the financial standards applicable. This financial information is reliable and represents aspects that are going on in the company. Coming to the comparability every individual business has to compare the financial accounting, reports and documents with other competing companies. This comparability makes the company to changes the methods and required issues. Accounting in finance is changed due to the influence of GAAP. If it is the case of changing the process it will change the principle, estimation, and reposting of documents. Many methods are implemented to correct the errors in account changes. This GAAP in accounting changes the financial statements. The statements FAS 73 is the statement used to change the account reporting for road track designing, FAS 111 statement is the break out stamen of FASB statement 32 used for technical error corrections. Similarly FAS 154 is also used for error corrections and changes in accounting to gain the goodwill of the company (Bill D. J., 2008). There are many statements implemented that are used for particular change in financial accounting. They are related to accounting, pensions, employees, and others. All these are important before introducing a standard in the business which is improving for its goodwill through accounting. In this project the FASB 141 is established in the company regarding the goodwill and financial accounting. This statement can evaluate the acquisition date, calculates the goodwill amount and control the acquirer entity. Goodwill is the amount gained more than the fair value that have been paid in the company. The acquirer entity will gain excess amount and reports this in financial accounting. This statement is not applicable to the group of assets which have nonprofit combinations. This statement in FASB will follow the SFAS nos. 141 and 142 in case of not for profit in the organizations and access. They will reach the standard boards to carry out the business combinations for obtaining the goodwill. SFAS 141 improves the business combination and its declaration related to accounting and acquisitions dates and reporting. Another statement SAFS131 standard is used for reporting the segments and implementations that are introduced after the research and observations (Maria K. D., 2008). The data from the operating segments are recognized for reporting. The information is exposed about products and services in acquisition. And it is not required globally in the operating segment information. It adjusts the financial reporting, reveals various components information according to the products, services and other major issues. Due to this the business firm in combination can gain the revenue, expenditures from the information obtained through the resources in measuring the operations. The internal and external reporting can decide the management changes and this external reporting will decide the internal reporting. The profit and loss are reported along with the revenues segment assets. The FASB 141 and FASB 131 are mainly used in business combinations for gaining the goodwill in accounting from several aspects. The general information regarding finance, expenditures and profits is determined by these statements and standards. The statements and the GAAP can make the business firm improved and developed in every aspect. The rules based on this can lead to the standards for FASB. The US GAAP and the international standards will converge to create the principle that may change the financial accounting and reporting. The GAAP changes the placement and increases the private company involvement. Hence from the above context it can be understood that the FASB changes the process and procedures regarding financial accounting in the business firms. These are most used in American industries with standards and statements. The statements founded are used to change the particular aspect in the business accounting. The standards are made to lead the company with their products and services (Barry J. E., Ralph N. and Steven M. B., 2009).The FASB statement Nos.131 and 141 are used in the financial accounting for the acquiring the goodwill. These standards will assure the individual in the company to make the integration with another company for business combination. The goodwill accounting can be evaluated using these statements. The errors in the goodwill and its accounts are also corrected by the standard. All these standards and its characteristics tend to improve the business accounting process and M&A. this lead to result in goodwill of the company. The FASB-73, 32, 154 and 111 are the standards for improving the GAAP in the financial accounting standard boards. The FASB has followed the SFAS 141 and 131 for business combination mainly to consider when the fair value is more than the net values of the intangible assets. US GAAP mainly uses these FASB standards in business accounting for goodwill.
- Judith W. (2008) GAAP Guide Levels B, C, and D, CCH publishers, pp.1400
- Bill D. J. (2008) U.S. Master GAAP Guide, CCH publishers, pp. 1320
- Maria K. D. (2008) Accounting for Real Estate Transactions: A Guide for Public Accountants and Corporate Financial Professionals, John Wiley and Sons publishers, pp.430
- Barry J. E., Ralph N. and Steven M. B. (2009) Wiley GAAP Codification Enhanced, John Wiley and Sons publishers, pp.1368
Adopting IASB and IFRS accounting standards in case of Infosys (Need to be done)
Infosys is one of the large IT organizations operating its business in many countries like India, Australia, China and etc. The accounting standards can change from one country to other, even though Infosys operating business in many countries it followed uniform standards to maintain their accounts. In recent times Infosys adopted IFRS standards while preparing the financial statement for the company. Previously most of the companies in India like Infosys, Wipro and other IT organizations used US GAAP standards, but due to recent changes in economy all the companies changed to IFRS standards as it specified very strong rules in accounting process. IASB developed IFRS standard for helping accountants and auditors in large organizations. Infosys operates its business in different sectors like BPO, consulting and IT; each sector financial statements with including goodwill in it can be calculated using IFRS accounting standards. In February 2007, Infosys made an agreement with its BPO employees regarding the shares. It completed this agreement and purchased almost 3, 60,417 shares by the end of March 2008. In this share purchase between employees and Infosys management it gained huge profits. Infosys also entered into sales and purchase sector by making an agreement with Koninklijke Philips Electronics NV, through this agreement it attained good amount of goodwill which is worth of 83crores. In 2009, the investments related to Poland and Thailand Infosys BPO and P-Financial services are transferred to Infosys BPO in India. This internal merging of the investments improved operating abilities of Indian Infosys BPO sector. By the end of March 2009, Pan-Financial private limited completely merged in Infosys BPO. Based on these observations it can be concluded that, Infosys made many agreements and merging with other small sectors for continuing its business. With these kinds of mergers and acquisition it achieved efficient amount of goodwill. Infosys entered into consulting business with the investments of 5million US dollars and 20million US dollars respectively. By 2009 it spent almost 45million dollars on consulting business. All these investments can come into play when calculating goodwill of the company. In case of Mexican Infosys it integrated with other companies and noted 60millions of profits. Even though mergers and acquisitions increased goodwill value in most of the cases, it experienced reduction of goodwill while dealing with purchases of assent in Australian Infosys. All these investments and profits in different segments of Infosys can be presented as: