Goodwill (accounting)

Goodwill value ( "goodwill" ) is in accounting, the term for an intangible asset items in the reporting entity, resulting from acquisition for consideration by other companies or parts of companies ( derivative goodwill ) or as internally generated goodwill represents an appreciation of their own company ( of original goodwill ).

General

Goodwill is an abstract, conceptual design, to fill the gap between income -dependent and substance- dependent valuation is to be bridged. Overall, the goodwill is defined as the difference between the total enterprise value and the sum of the values ​​of all assets and liabilities. Its height is difficult or impossible to determine quantifiable factors ( earnings prospects, customers, potential, quality of management, industry meaning, etc. ) that make it difficult objectified accounting treatment.

Commercial law, is within the completeness principle requires ( § 246 paragraph 1 sentence 1 HGB and 2 ) that the legal or beneficial owner of an asset has to include this in its balance sheet. Which will bring the company's value in the focus and accounting achieved significance by the activation requirement of § 246 paragraph 1 sentence 4 HGB, which applies since BilMoG from May 2009 and the goodwill irrefutably fabricated as an asset. In this activation bid the law, however, makes a distinction between the original and the derivative goodwill. At the same time the principle of completeness, however, also intended to ensure the protection of creditors in the context that only those assets are accounted for, which can serve the creditors as debt coverage potential.

Asset / asset

It is now clear that the goodwill in close connection with the term of the asset is to be seen. To further clarify, therefore, is first to respond to the terms asset and asset; in commercial law is the asset of the speech, in tax law, however, from the asset. As used in § § 4 ff Income Tax Act of the asset corresponds to the case law of the BFH commercial-law term of the asset. Therefore, it is discussed in the following only on the term asset.

The term asset is indeed often mentioned in the Commercial Code, which is incorporated herein but not defined. Therefore, it depends on law and literature, where a common understanding but there is not. As secured that assets represent economic value of the reporting merchant. Among the assets, however, include not only the specific assets and rights within the meaning of the Civil Code, so-called intangible assets that are neither things nor rights (such as legally unprotected inventions ).

Assets must be independently evaluated, their Einzelveräußerbarkeit is not required by the BFH -law; a transmission with the entire operation is sufficient to meet the requirement of an independent measurability. Commercial law aimed at making disaster self- recoverability of assets, and it is alienable when goodwill is not detached from the entity or is a usable article. Therefore, include items that can be transformed by total or partial disposal operation in money to the assets.

The BFH required as a tax law requirements for recognition as an asset in addition to the criteria explained " transferability, together with the operation" and " independent of valuing " the " balance sheet tangibility ". The latter is given when a good sale in the whole operation falls as a single unit into the weight. For intangible assets, fixed assets, the criterion of independent measurability is also met; they are considered as assets and are in principle capable of accounting. The independent transport capability is not required for an asset items according to settled case-law of the BFH; for the tangibility of the asset transferability sufficient, together with the whole farm.

In commercial law, the abstract activation ability is, however, determined solely by the criterion of "independent usability ". Generated intangible fixed assets can therefore be included as an asset in the balance sheet. Excluded are internally generated brands, mastheads, publishing titles, customer lists or equivalent ( § 248 paragraph 2 HGB, . based on the IFRS) and self-developed software, this accounting prohibition in § 248 paragraph 2 HGB corresponds to tax the provision of § 5 para 2 Income Tax Act.

Species

Both commercial law and tax law is to distinguish between the original and derivative goodwill.

Ownership of goodwill

In the original goodwill is created by the reporting entity intangible assets such as one determined by the assessment of their own company higher valuation, which does not arise from the balance sheet net assets and has not yet been settled as part of a transaction or internally generated brands, mastheads, publishing titles, customer lists or similar. These or other items for which a definition of the cost of production attributable to the goodwill expense is not readily possible, according to § 248 para 2 HGB, a general activation of Prohibition. As long as the self-created goodwill has not yet been substantiated by an objectively ascertainable consideration in the form of effective cost, thus confirming the market, it may not be accounted for using the tax requirements; concretized in terms of the jurisdiction of the original goodwill is only through the sale of the individual company concerned.

The commercial law activation ability is limited solely to such self-created intangible assets that meet the criteria of an asset. If the asset properties met, there is for the original goodwill may be capitalized, unless it is brands, mastheads, publishing titles, customer lists or similar intangible fixed assets that were not acquired for valuable consideration ( § 248 paragraph 2 sentence 2 HGB). This means that the capitalization option refers specifically to development costs. It depends on whether you need the commercial legal criteria of an asset are met.

The law governing the original goodwill general activation ban persists even after 2009 BilMoG. However, if intangible fixed assets enabled, they are automatically assigned a distribution restriction in accordance with § 268 HGB No. 8. § 246 paragraph 1 sentence 4 HGB and § 253, paragraph 5, sentence 2 HGB feign only the derivative goodwill as an asset, but not the original; the activation option pursuant to § 255 para 4 HGB aF is omitted. This limited the derivative goodwill fiction means that when exercising the option to capitalize on an original goodwill the characteristics of an asset must be demonstrated.

Derivative goodwill

When derivative goodwill of these separate proof is not necessary, because the law irrefutable presumption that the properties of an asset are met. If the purchase price for a valuable consideration acquiree over the net assets ( assets minus liabilities), the positive difference is capitalized as goodwill derivative. Requirement for a derivative goodwill is therefore the existence of a difference in the amount by which the caused for the acquisition of a company in return must exceed the value of the individual assets minus debts. If this difference is negative, it is a so-called "bad will".

• Value of equity Hidden assets = net asset value

• Purchase price - intrinsic value = goodwill (goodwill ).

Goodwill represents the amount to pay a buyer as a whole, taking account of future earnings, the value of all tangible and intangible assets, net of debt is ready.

For the derivative goodwill is a general capitalization requirement; the law raises him in the way of conclusive presumption for asset ( § 246 paragraph 1 sentence 4 HGB). This prevents the law in any particular case a discussion whether a particular derivative goodwill meets all the requirements of an asset or not. This helps to minimize the doubts are dispelled and created legal certainty. Derogations as exist at the original goodwill, there is not the derivative goodwill. The commercial law capitalization requirement is consistent with the tax in § 7 paragraph 1 sentence 3 German Income Tax Act. The previous activation option pursuant to § 255 paragraph 4, sentence 2 and 3 HGB old version is consequently omitted.

Commercial Legal and tax issues

In accordance with § 248 section 2 HGB, the activation prohibition applies to the self-created ( original ) Goodwill, while the acquired against payment (derivative ) Goodwill must be activated regularly ( § 246 paragraph 1 sentence 4 HGB). Therefore, the derivative goodwill is planned or if a permanent impairment, exceptional amortization ( § 253 paragraph 3 HGB ).

The derivative goodwill is expressly depreciable asset ( § 246 paragraph 1 sentence 4 HGB) what the comparable regulation of IFRS 3.32f. contradicts. For the approach altitude, the provisions of § 255 para 2 HGB shall apply. The derivative goodwill is amortized in accordance with § 253 paragraph 3 HGB, unless the factual conditions for non-scheduled depreciation are. For him, there is a tax life of 15 years ( § 7 para 1 sentence 3 of the Income Tax Act ). Is an accounting useful life of more than 5 years, provided the reasons are in the notes to the accounts shall be indicated ( § 285 No. 13 HGB). A mere reference to the tax life of 15 years is not enough, because the use of commercial law must be assessed independently of the tax law. Usually companies go from a commercial law useful life of between three and eight years of, at ( acquired for valuable consideration ) ERP Software ( programs about SAP AG ), the useful life of five years. If the reasons for an impairment loss to the lower, fair value of the goodwill, there is an exception, no attribution requirement, but a write- ban ( § 253, paragraph 5, sentence 2 HGB). From the reversal of impairments of goodwill, therefore, remains the exception and is occupied by a reversal of impairment. The derivative goodwill is excluded from the reversal of impairments, because it is assumed that an increase in value of the derivative goodwill is based on the activities of the reporting entity and therefore its value increase would mean an illegal activation of internally generated goodwill.

Equivalent to the derivative goodwill commercial law are acquired for consideration concessions, licenses or industrial property rights, which are shown separately according to § 266 para 2 AI 2 HGB.

Consolidated Financial Statements

If the carrying amount of the subsidiary at the parent company does not match the balance of equity, creating a consolidation adjustment item. This difference arising on consolidation is - similar to the derivative goodwill, but are shown on the liabilities side under the equity - from its theoretical origins. Special provisions are made in accordance with § 309 paragraph 1 sentence 1 HGB for its depreciation.

International accounting

Even after other international accounting rules is the derivative goodwill in the financial statements be capitalized. This applies, for example, U.S. GAAP and IFRS for. However, is also in accordance with IFRS for the self-created goodwill ( original GoFW ) an explicit prohibition on capitalization (IAS 38.48 ). The same applies to U.S. GAAP, as the internally generated goodwill is not individually identified and its useful life can not be determined (FAS 142.10 ). Since it is an asset without the derivative to be estimated lifetime value of the company, he is not subject to amortization ( impairment-only approach). In place of the depreciation, annual impairment test ( impairment test) is based on IAS 36

Badwill

The " negative goodwill " is a negative goodwill value in accounting. It arises in the context of capital consolidation, if the purchase price for participation is a company purchase below the value of the net assets. The " negative goodwill " as " negative goodwill " is defined as negative earnings outlook or " lucky buy " to explain and according to § 301 para 3 sentence 1 HGB as a provision on liability ( " goodwill from capital consolidation "). It thus reduces under otherwise constant conditions, the net assets of the acquiring company. This provision may only be resolved if either the expected unfavorable earnings trend has occurred or is determined at the balance sheet date, that the " negative goodwill " corresponds to a realized gain ( § 309 section 2 HGB ). While the Commercial Code of a such liabilities emanating, an approach ban is defined in IAS 3:56 ff. After further review (" reassessment" ) is the negative difference is recognized as income in the profit and loss account.

"Lucky buy" (or " bargain purchase " according to IFRS 3.56 ) is that favorable corporate acquisitions are called in the financial world, where the purchase price is below the expected threshold of the acquirer or it turns out later that the purchase price paid is less than the market value. A negative return potential exists when the Company to be acquired (the " target" ) going out due to external or internal developments of deteriorated earnings outlook or even losses.

Derivative goodwill in practice

In economic boom times, with a high rating of own shares or readily available foreign money at low interest rates, acquisitions are often made ​​at inflated prices. This allows high goodwill as derivative goodwill arising, which must be justified only under very optimistic assumptions.

The accounting in the years following a takeover of the rules of IFRS 3 (IAS 36) in 2004 are not scheduled, periodic amortization of this goodwill allowed since more revision. However, there is an obligation to annual impairment testing. The company's management has considerable leeway with respect to assumptions about the future course of business and the applicable discount rate. Intrusive Depreciation is sometimes deliberately delayed because the management wants to give no nakedness of checks performed acquisitions. A newspaper article on this topic appeared under the title " A lot of hot air in the balance sheets of the DAX companies. " The document mentioned study by the University of St. Gallen, Switzerland, speaks of a very hesitant depreciation practice. This leads while total ordinary course of business to better earnings reports of the respective companies, and to a pro-cyclical impact on the result. If on the other hand companies with relatively high goodwill fall into obvious difficulties and / or new management took over the management, high depreciation are often made ​​to clean up the balance sheet, so that the company's results more negative fails. Therefore, the yields have become cyclic by the influence of goodwill accounting under IFRS.

In Switzerland, especially some medium-sized companies, but also the Swatch Group and Georg Fischer Ltd, changed its accounting from IFRS to Swiss Swiss GAAP FER. In addition to lower cost, there is the advantage that while business is good amortization of goodwill derivative ( quote: " get rid of the goodwill " ) are possible.

Cautious stock analysts draw from the entire goodwill recognized from equity to get a better idea about the substance of a company.

Examples of multi-billion dollar write-downs of the derivative goodwill after acquisitions are:

• In the Italian banking sector at Unicredit, the largest Italian banking group, in the amount of 9.3 billion euros for the year 2013 and at Monte dei Paschi di Siena, the oldest bank in the world of 5.8 billion euros in 2011 and 2012
• In the telecom sector operator at Telecom Italia in the period from 2011 to the first half of 2013 in the amount of 14 billion euros; at Deutsche Telecom because of the merger of T-Mobile USA with PCS of 7.4 billion euros in 2013; at Swisscom after buying the Italian Fastweb in 2007 by CHF 1.3 billion in 2011.

In individual cases, like a high derivative goodwill be justified because, for example, exploited significant synergy potential or important innovations to be purchased. From a macroeconomic perspective, however, is hardly understandable that in times of major acquisitions and mergers are the total of newly appearing in the books of additional derivative goodwill correspondingly high real value against.