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Technology Stocks : Wind River going up, up, up!
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To: planetgranite who wrote (9646)5/18/2001 9:05:20 AM
From: JSwanson   of 10309
 
What is goodwill?

Currently there are two acceptable methods to account for business combinations: 1. Purchase Accounting and 2. Pooling Accounting.

With purchase accounting assets and liabilities of the acquired company are recorded at (an estimate of) market value. Excess purchase price, the amount over the estimate of market value is recorded as good will on the acquirers books and the goodwill is written down, amortized, over time. This is changing later this year as noted in Allen Benn's post.

With pooling the assets and liabilities of the acquired company are recorded at book value. The excess purchase price of net assets is ignored.

Because companies dislike the non-cash charge to earnings of goodwill amortization, pooling is far and away the preferred method of accounting for business combinations.

Both methods have their faults, thus FASB's desire to make a change but it is not an easily solved problem.

JS
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