Question

Peter Wong, a friend of yours, is an active investor in global stock market. After he read the financial reports of Apple Inc., in which goodwiil amounting to US$1,577 million was shown on the consolidated statement of financial position of the parent company and its subsidiaries at the year-end of 2018 but none of the goodwill was reported in the parent's financial statements, he was so confused and he is seeking for your help to answer his concerns as follows:

(a) State any FOUR intangible factors which contribute to the Inc. selling iPad, iPhone, Mac, iPod, and iTunes, etc.

(b) Why is the goodwill reported on the consolidated financial on parent's financial statements? goodu'ill of Apple statements but not

(c) Peter Wong questions the practice that goodwill should be recogntzed as an asset in the consolidated financial statements because he believes goodwill has no physical substance and no one can even quantify the income generated from it. What is your response to his doubts?

(d) Accountants had used the method of amorttzation for the goodwill accounting for a decade before 200I. Currently the accounting for goodwill should be subject to impairment test. Discuss the key assumptions and features of the "amottization" and "impairment test" for goodwill measurement. Discuss the pros and cons of the impairment test relative to amortization. ( 12 marks)

Answer 1

Req. 1

a. Apple Inc. has more demand than its supply.

b. Technology is top factor in Apple

c. Socio-cultural factor is important for companies for worldwide developed.

d.Apple is its the Brand in Technology

e.Its Uniqueness & zero percent error free are their aim.

f. Apple is customer oriented.

Req.2

Parent's portion of equity of the subsidiary is more than cost to the parent of its investment in subsidiary on the date on which investment in subsidiary is made, then that excess amount should be considered as Goodwill in Parent's Financial Statement.

Req. 3

Goodwill is nothing but Company's brand, Market Reputation, Product's formula. As it has no physical substance. It can not be quantify but It recognised in Financial Statements for Market Value of Company.

Req. 4

Assumptions and features of the "amortization" and "impairment test" for goodwill measuremeny:

1. Amortization is writing down of Goodwill in every year. Company should have to take impairment test every year.

2. Because of amortization, goodwill will not be overvalued.

3. Due to Amortization, Goodwill will reflected correct value. and every year appropriate amount transfered to Profit or Loss.

4. In Impairment Test, Goodwil is revalued.

5. assessment of current situation of company.

6. current fair market value compared with current value of goodwill in impairment test.

The pros and cons of the impairment test relative to amortization.

1. as compared to amortisation late recognition of impairment losses and the overstatement of goodwill.

2. The cost & complexity in Impairment Test.

3. In Impairment Test, Significant Judgement involved, it may result in lack of transparency.

4. Requirement to perform discounted cash flow calculations on a pre-tax basis, which some consider to be problematic,

5. The requirement to determine the recoverable amount even when there is no indication of an impairment loss