Lecture 3 part 2

Question 1

Goodwill is an…

Answer 1

intangible asset that arises when one company buys another company for more than the value of its net assets (assets minus liabilities).

Question 2

Key points of Goodwill:

Answer 2

Goodwill is a non-amortized cost.
Goodwill is an intangible asset. Represents non-physical value like brand, customer relationships, or employee expertise.
Goodwill is tested every year.
Goodwill is a level 3 asset

Question 3

In Financial accounting they organise transactions and records. The records are traditionally traces of past events. But IFRS requires them to ”engage with the future”.

Question 4

This is why accounting is constitutive more than reflective. Aka:

Answer 4

accounting does not merely reflect economic reality but actively shapes it.

Question 5

Summary of debate: Reliability vs. Faithful representation

Answer 5

Previously there was a trade-off between relevance and reliability in the Conceptual Framework (CF). However, an item should fulfil both qualitative characteristics. Reliability changed to faithful representation. But, “faithful representation” gives the impression of objectivity, even though accounting is shaping the knowledge it presents. Huikku et al (2017) find that reliability is relative.