1. As explained within the Chapter 8, intangible asset, Australian accounting standards now
prohibit goodwill from being subject to amortisation. Rather, there is a requirement that
goodwill be subject to impairment testing. In relation to impairment testing of goodwill,
Petersen and Plenborg (2010, p.420) state:
Many argue that an impairment test only approach seems a logical step in the development of
accounting for goodwill. First, the underlying logic for removing the traditional amortization
methodology is that the amortization on a straight-line basis over a number of years contains
no information value for those using financial statements (Jennings et al., 2001). Moreover,
IFRS 3 (IASB, 2004b) no longer requires that companies perform the almost impossible task
of estimating the useful life of goodwill (Jansson et al. 2004). Second, the impairment
approach should provide users of financial statements with better information, as goodwill is
not automatically amortized (Colquitt and Wilson, 2002; Bens and Heltzer, 2005). Finally,
goodwill impairment tests would be operational and capture a decline in the value of
goodwill (Donnelly and Keys, 2002).
You are to provide a clear argument as to why you agree or disagree with the perspectives
provided in the paragraph above.
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