Use the Effect of Goodwill Amortization on the Usefulness of EPS to Evaluate the Relationship between SFAS No. 142 and FASB Conceptual Framework

Use the Effect of grace Amortization on the Usefulness of EPS to label the Relationship between SFAS none 142 and FASB Conceptual Framework

Abstract

In 2001, the Financial score Standards display panel FASB approved significant changes in the way income is determined for combined business entities. In an effort to make good will and other intangible assets accounting more transp arent, SFAS No. 142, gracility and Other Intangible Assets, requires firms to stop saving grace amortization. Obviously, SFAS No. 142 supersedes APB (Accounting Principles Board) faith No. 17, Intangible Assets. My research will focus on comparing meshing per allocate (EPS) before Goodwill amortization and earnings per share after Goodwill amortization as alternative indicators of share values for a random examine of listed firms over the period 1993-1998 from S&P 500. I find that EPS before Goodwill amortization is more unblemished than EPS after Goodwill amortization as the indicator of share values, and that Goodwill amortization simply adds noise to investment analysis. These results express that SFAS No. 142 matches the FASB conceptual framework better than APB Opinion No. 17.

1.Background

Goodwill is the difference between a firms total book interlock assets and the fair-market value of its identifiable net assets.



The intangible asset represents the draw of the firm, its reputation, competitive or other intangible advantages or resources that are expected to enable the firm to generate more earnings than normal return by its identifiable net assets . Goodwill may be developed internally by, for example, building customer loyalty, developing human resources, or utilizing assets more efficiently than competitors. Alternatively, Goodwill may be purchased whole when one firm acquires another.

The receptive accounting treatment for Goodwill is governed by Accounting Principles Board Opinion No. 17--Intangible Assets. Under APB 17, Goodwill that is developed internally is not recognized as an asset. In contrast, the cost...

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