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Internally Generated Goodwill – Should It be recognised?

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Internally Generated Goodwill – Should It be recognised?

  • This topic has 2 replies, 3 voices, and was last updated 10 months ago by P2-D2.
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  • Author
    Posts
  • March 9, 2022 at 11:41 am #650441
    AndrewPhoenix
    Member
    • Topics: 4
    • Replies: 0
    • ☆

    Dear Sir/Mdm,

    I have come across this question 292 on BPP FR Pratice book, it is asking the treatment for a customer contract, the contract is as follows:

    At the date of acquisition Savannah Co had five years remaining of an agreement to supply goods to one of its major customers, the agreement has been consistently renewed when it expires. The directors of Plateau Co estimate that the value of this customer based contract has a fair value of 1 million and indefinite life.

    Now the answer is that this should be recognised at 1 million, and not amortised, but I think the customer contract should not be recognised as it is internally generated, was my thought wrong? Because if this can be recognised, isn’t that the company can anyhow raise their estimate of the contract, and their asset will thus be overstated?

    Looking forward for your response,

    March 11, 2022 at 4:20 pm #651035
    adilomax
    Member
    • Topics: 0
    • Replies: 3
    • ☆

    It is not Goodwill. It’s Intangible Asset. Valuation should be made at Fair Value i.e 1 million, on the date of acquisition.

    March 12, 2022 at 8:56 am #651135
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6440
    • ☆☆☆☆☆

    Hi,

    If a previously unrecognised intangible in S’s books has a fair value then it can be recognised in the group accounts at fair value upon acquisition. This is because our consideration paid it reflective of this fair value and so therefore separately recognised but only in the group accounts. It remains unrecognised in the individual accounts of the subsidiary.

    Thanks

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