The urgent issues of accounting a company's goodwill

This paper is intended to give the definition of goodwill and reveal its accounting features in the Russian and international practice. It considers the problems of accounting for goodwill and suggests ways of assessing business reputation of the acquired company. Goodwill is a perceived representation of the past activities and future prospects of a company, which describes the company's attractiveness to its main competitors. Impeccable reputation increases the competitiveness of the organization in the market. It attracts customers and partners, accelerates sales and increases their volumes. Goodwill is a unique object of accounting: it does not exist separately from the company; it is the inalienable property of the company. However, for most companies, goodwill is the most important asset that helps them gain more profit than average company in similar industry. Russian accounting standards define goodwill as a difference between the purchase price paid when purchasing company's assets (all or some part), and the amount of all assets and liabilities reported on the balance sheet by the date of purchase (acquisition). In IFRS, goodwill accounting is regulated by several standards, which consider it as two separate categories. IFRS (IAS) 38 "Intangible Assets" addresses issues of identification of internally generated goodwill, while IFRS (IFRS) 3 "Business Combinations" describes the accounting for goodwill that emerges in business combinations.Currently, there are several main approaches to the accounting for goodwill of a legal entity as its intangible asset. Conventionally, there are two groups of methods -quantitative and qualitative. Qualitative methods enable us to determine the qualitative difference between the operation profits of business that form its reputation and the parameters of its competitors.Quantitative methods can estimate goodwill by rigorous analytics and make it possible to determine the numerical pattern reflecting the impact of the dynamics of specific economic and financial indicators on its accounting. Accounting for goodwill is important as it enables us to consider all the profitability of the deal in the purchase or sale of businesses, mergers and acquisitions. If otherwise, one of the parties will lose interest. Apart from tangible assets, a company earned particular customer loyalty, managed to capture a niche in the market, gave the knowledge and experience to its employees. In addition, knowledge of the exact value of the company contributes to making more accurate management decisions. Well-formed estimation of goodwill will contribute to an increased investment attractiveness of companies, gaining competitive advantages in the domestic and foreign markets, and the protection from unfair competition.

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