FASB is recommending that companies cease amortization of goodwill arising from prior acquisitions once its proposals for new merger- related accounting rules have been adopted. The rules will probably go into effect sometime in the third quarter of 2001.
When FASB issued its recommendations two weeks ago (see our story), it didn’t address whether companies merged under the old rules would be required to continue amortizing remaining goodwill.
However, at a scheduled open meeting on Wednesday, the accounting organization officially decided that companies stop the write-offs once the new rules go into effect, according to Tim Lucas, FASB director of research and technical analysis. Lucas was not immediately available for comment.
Other highlights arising from this morning’s meeting:
- The Board also addressed technical issues such as how to account for the goodwill of an acquired business when some assets are to be sold or otherwise disposed of. In the Exposure Draft, FASB proposed that a company assign a goodwill figure to each of the assets being sold. Now, FASB will assume that the goodwill is still there as long as the company determines that the remaining net assets support the value determined at the time of the acquisition.
- FASB also determined that goodwill impairment charges should be presented as a separate line item in the operating section of the income statement. This is different from the solution proposed in the September 1999 Exposure Draft, Business Combinations and Intangible Assets, that charges be presented as a separate line item after income from operations.
- The Board expects to publish details of today’s meeting regarding goodwill requirements by February 1, 2001. It then hopes to begin soliciting comments for a period of 30 days on its website.
- In addition, FASB anticipates implementation of its rules regarding goodwill and intangible assets as early as the quarter beginning July 1, 2001.