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Goodwill Clarification Memo

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Memorandum To: The Controller of Railtrax Corporation From: Carmen Khouri, from Independent CPA firm Date: November 17, 2017 Subject: Clarification of Goodwill In this memo we will clarify what is goodwill and how it is measured. We will also answer why corporations purchase goodwill during a business combination and look at the two criteria that are used by FASB to recognize identifiable intangible assets which are reported separately from goodwill. Finally, we will test the goodwill impairment of both subsidiaries “A” and “B” and see whether the goodwill has been impaired. Goodwill Clarification It is imperative to have a thorough understanding of goodwill and goodwill impairment, which is acquired during a business combination. …show more content…

The other criteria for identifiable assets that are separate from goodwill can be found in both ASC 805-20-25-10 and ASC 805-20-55-2 where it specifies that if an identifiable intangible asset meet either two criteria, the separability criterion and the contractual-legal criterion. As an example, if it meets the separability criterion then asset can either be sold or exchanged for a value monetary or otherwise and is inherently separable from the acquired business. If it meets the contractual-legal criterion then it is based on a legal contract such as a license or …show more content…

Based on the information given from Railtrax three of the unrecognized intangibles fall under the ASC 805-20-55-2 criteria of identifiable intangible net assets and are not categorized as goodwill. Based on ASC 805-20-55-42 databases can be sold or traded and meet the separability criterion therefore it is not included in our goodwill calculation. The same follows for use rights, per the ASC 805-20-55-37 they are typically based on contracts and are not factored into goodwill. Lastly trade secrets are also excluded from our goodwill calculations per ASC 805-20-55-44 since they meet the contractual-legal criterion. The only two values that are subsumed into the goodwill calculation are the in-process research and development ASC 805-10-55-5C and the assembled workforce ASC 805-20-55-6, since they are considered assets that aid in the maintaining continued

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