Intangible assets and goodwill are both related and differentiated concepts

"Zuo Zhuan" has a cloud: people who have no? It is good to be able to change. Once again, when the serial article was revised, Dr.2 found several errors and ambiguities, for example, intangible assets and goodwill are both linked and differentiated concepts, and the Chinese and American accounting standards for their calculation method is very different, I am in the "interesting multiples" of this article is wrong, and improper use of "mention" The word, confusing it and "amortization" is two different accounting concepts.

No one can point out that the mistake is there and shame. In the "control premium" article, I only mention the value of the company's increased cash flow, but this is incomplete, because it also includes managers of the acquisition target of the snow, and even intentionally low value, control let it bankrupt or privatization. There are also two very important issues that I have not addressed--the life cycle of valuations and the "quantitative assessment of team values". In addition, most of the time startups are valued for financing, will financing be beneficial?

So I came back, and it's all my fault now, even if I'm not doing academic work, I have to be as rigorous as possible in writing articles. First of all, let's explore the "goodwill".

Goodwill (Goodwill) refers to the enterprise for various reasons, in the user enjoys the high prestige, the management situation is specially good and is higher than the same industry general level profit ability, is can make the enterprise the human, the wealth, the material and so on the factor in the economic activity interaction, forms one kind of "the best state" the objective existence. Goodwill is an asset, but it cannot be accounted for. Only in the special form of accounting, the essence of goodwill, the more authoritative point of view when the famous accounting theorists Hendrickson in its monograph "Accounting Theory" introduced in the three points, namely, goodwill value theory, excess income theory and the total valuation account theory. On the "ternary theory" of goodwill and other basic theories such as interested in reading professional books, here no longer repeat, but the following article on the goodwill of the news report, has aroused the concern of Dr.2: May 2014 Qinghai Yin Cheng Mining Co., Ltd. on the correction of accounting errors notice.

Qinghai Innovative Mining Development Co., Ltd. (hereinafter referred to as "innovative mining") has merged goodwill 15,423,321.40 Yuan, there is no evidence that the future of innovative mining companies to bring excess income and other economic interests inflow, so its full account of the loss of goodwill to reduce the value of the preparation, reducing goodwill 15, 423,321.40 yuan, increase the loss of assets impairment of 15,423,321.40 Yuan.

From the angle of accounting, the meaning of goodwill is not limited to the friendly relationship between enterprises and customers, goodwill is defined as "the future excess economic benefit brought by the unrecognizable assets", and the enterprise regards the business as non current assets. Goodwill is generated by a number of factors, including customer trust in the enterprise, loyalty, first-class management team, relatively high productivity, extensive social relations, strong sense of responsibility and good market share, etc. A successful enterprise tirelessly develop and consolidate their goodwill, but we do not clearly clarify the enterprise in order to develop and consolidate these goodwill efforts and costs. Therefore, the invention of the word goodwill is just a description of the unknown, confused assets.

Goodwill can be purchased, or it can be generated in-house. However, only the purchase of goodwill can be accounted for, because there is a net price, can be objective valuation. On the contrary, the goodwill generated within the enterprise cannot be measured by itself, even if it is costly and proves to have some connection to the creation goodwill, but according to the principle of prudence, we can only treat these expenses as expenses rather than capitalization them. Because it is not possible to confirm which expenditure is "born" to create goodwill, it is impossible to calculate how much goodwill it creates.

So goodwill cannot be sold or purchased separately, and goodwill can only be recognized when it is acquired or partly acquired by another company. The balance sheet first lists the total fair value of the acquired identifiable net assets, and the rest is goodwill. So what is fair value? Fair value is the value of an asset traded between a sober buyer and a sober seller under the principle of fair trade. Back to the example in the first quarter of the valuation series: "260" sold "13" to "280" a month. Assuming on the delivery date, the book value of the "13" Company's identifiable net assets (asset-liability) and its fair value are as follows:

Book value (million) fair value (million)

Account Receivable 100 100
Inventory 500 600
Equipment 1000 800
Vehicle 200 300
Land 1000 1500
Building 600 800
Accounts payable (300) (300)
Bank interest payable (200) (200)
Total 2900 3600

Finally, the "280" acquisition of "13" is the cost of cash 78 million. In other words, he acquired 42 million (78 million-36 million) goodwill from the "13" section. If the acquisition cost of "280" is cash 30 million, you will find that the purchase price is less than "13" of fair value 6 million, which we call "negative goodwill", which is also common, since the acquisition evaluation is usually based on discounted cash flow and comparative law, whereas fair value often takes into account the present value of tangible net assets.

Prior to 2001, goodwill, as an intangible asset, was regularly amortized over a certain period of time and the profits were reduced. For example, the United States Accounting standards stipulate that the amortization period of goodwill is up to 40 years, the Australian accounting standards shall not exceed 20 years, China stipulates that the amortization of goodwill shall not exceed 10 years. 2001, the United States accounting standards that the goodwill is no longer amortized, in 2005, the International Financial Reporting standards also prohibit goodwill amortization.

Now, in most countries the accounting standards stipulate that goodwill can only be reduced. According to the New Enterprise Accounting Standards promulgated by China in 2006, intangible assets are identifiable non-monetary assets, such as patents and trademarks, which are not in physical form owned or controlled by the enterprise. and goodwill belongs to intangible assets of enterprises, but it is not an intangible asset because of its illegible nature. The new guidelines also stipulate that goodwill will not be amortized during its holding period once it has been confirmed. If the enterprise owns the goodwill formed by the merger, it should at least carry out the impairment test at the end of each year. It also stipulates that goodwill in the balance sheet of non-current assets is shown in net terms.

We go back to the case of Yin Cheng Mining, the so-called various accounting treatment errors led to the company a total reduction of 1.7 billion of the huge, this will be included in the annals of capital markets. Single from the "Innovative mining" full account of the loss of goodwill to reduce the value of assets to increase losses of more than 15 million yuan, this is obviously the Qinghai-Hyun Management in the acquisition of business negligence.

Given the very limited information, we first have to question how the goodwill figures were generated when the acquisition was acquired. From the perspective of a formal operation of the enterprise, the acquisition must be placed high expectations, otherwise it will not give so much goodwill value. But after the takeover, the situation immediately shifted, and eventually ended in a reduced value. The cost of acquisition is obviously from the company's cash reserves or bank loans, neat, clean and clear to let all shareholders lost tens of millions of of the value, is the so-called let you high you are high, not high also high, so that you lower you low, love how to.

Goodwill impairment also poses a risk, that is, the value of the impairment is too large to reduce the value of equity to trigger default payments. Most banks require companies to maintain a relatively fixed capital structure, and banks have the right not to provide loans if they do not comply with the requirements of banks. When companies are desperate to continue lending to maintain their normal business, the risk of a significant impairment in goodwill may bring the business to its worst. Goodwill has lost its resale value because it is often worthless when an enterprise is threatened by insolvency.

Well, some readers will ask, what if this happens? I think there is only one solution from the perspective of rational thinking, that is, don't buy it, have been held without hesitation to sell, do not have any illusions about these people, just like a thief skillfully cut your bag to take away your things, he would be very pathetic to say: "This is my first time, I was confused. "Will you believe it?" From the human point of view, if a person bullying without serious consequences, then he will repeatedly bullying, until he no longer bullying. But the problem is that we don't know when he will stop bullying, so we have to stay away from hooligans.

Such things as Yin Cheng mining in China's stock market is not uncommon, really that simple? Take a look at the next chapter, "A reconsideration of the control premium".