Extended content
Goodwill refers to the potential economic value that can bring excess profits to enterprises in the future, or the capitalized value that the expected profitability of enterprises exceeds the normal profitability of identifiable assets (such as the average social rate of return).
Goodwill is an integral part of the overall value. At the time of merger, it is the difference between the purchase cost and the fair value of the merged net assets. The impairment of goodwill refers to the confirmation of the corresponding impairment loss after the impairment test of goodwill formed in the merger. The impairment of the goodwill of Royal Bank of Scotland was mainly caused by previous acquisitions.
The impairment of goodwill first affects the performance of listed companies, which is equal to the discount of the original investment results. The performance of the acquisition target is not up to expectations, which is what all parties do not want to see. Generally, they will try their best to finish it, at least three years after the performance commitment period. If the three-year commitment period passes, the probability of performance problems in M&A targets will be greater, and the drag on listed companies will be even greater.
Goodwill is the value that can bring higher than normal return on investment to enterprises in the future. The calculation formula of the goodwill of the invested subsidiary: goodwill = investment cost at the initial investment point-fair value of the identifiable net assets of the subsidiary at the investment point × shareholding ratio.
When an enterprise conducts an impairment test on an asset group or asset group combination related to goodwill, if there are signs of impairment on the asset group or asset group combination related to goodwill, it shall first conduct an impairment test on the asset group or asset group combination excluding goodwill, calculate the recoverable amount, and compare it with the relevant book value to confirm the corresponding impairment loss.
Then, the asset group or asset group combination containing goodwill is tested for impairment, and the book value of these related asset groups or asset group combinations (including the book value of the allocated goodwill) is compared with its recoverable amount. If the recoverable amount of the relevant asset group or asset group combination is lower than its book value, the difference will be recognized as impairment loss.