The accounting for goodwill differs in countries around the world. The discussion of a change in goodwill accounting practices shown below was taken from the notes to the financial statements of J Sainsbury Plc, one of the worlds leading retailers. Headquartered in the United Kingdom, it serves 11 million customers a week.
Instructions
Answer the following questions.
(a) How does the initial determination and recording of goodwill compare with that in the United States? That is, is goodwill initially recorded in the same circumstances, and is the calculation of the amount the same in both the United Kingdom and the
United States?
(b) Prior to adoption of the new accounting standard (FRS 10), how did the company account for goodwill? What were the implications for the income statement?
(c) Under the new accounting standard, how does the company account for its goodwill? Is it possible, under the new standard, for a company to avoid charging goodwill amortization to net income?
(d) In what ways is the new standard similar to U.S. standards, and in what ways is it different?