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A Proposal for Goodwill Accounting

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  • Hyung Il Oh
  • Stephen Penman

Abstract

An alternative accounting for goodwill in a business combination is proposed. In contrast to the ill‐defined ‘plug’ for goodwill in current accounting, the proposed accounting captures the economics of the transaction that identifies what is being purchased and what is subsequently being amortized or impaired. Empirical documentation complements the prescription.

Suggested Citation

  • Hyung Il Oh & Stephen Penman, 2025. "A Proposal for Goodwill Accounting," Abacus, Accounting Foundation, University of Sydney, vol. 61(4), pages 833-856, December.
    • Handle: RePEc:bla:abacus:v:61:y:2025:i:4:p:833-856
    DOI: 10.1111/abac.70010
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    References listed on IDEAS

    as
    1. Wen, He & Moehrle, Stephen R., 2016. "Accounting for goodwill: An academic literature review and analysis to inform the debate," Research in Accounting Regulation, Elsevier, vol. 28(1), pages 11-21.
    2. Richard Barker & Andrew Lennard & Stephen Penman & Alan Teixeira, 2022. "Accounting for intangible assets: suggested solutions," Accounting and Business Research, Taylor & Francis Journals, vol. 52(6), pages 601-630, September.
    3. Stephen Penman, 2023. "Accounting for Intangible Assets: Thinking It Through," Australian Accounting Review, CPA Australia, vol. 33(1), pages 5-13, March.
    4. Karthik Ramanna & Ross L. Watts, 2012. "Evidence on the use of unverifiable estimates in required goodwill impairment," Review of Accounting Studies, Springer, vol. 17(4), pages 749-780, December.
    5. Ron Shalev & Ivy Xiying Zhang & Yong Zhang, 2013. "CEO Compensation and Fair Value Accounting: Evidence from Purchase Price Allocation," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 51(4), pages 819-854, September.
    6. Amir Amel-Zadeh & Martin Glaum & Thorsten Sellhorn, 2023. "Empirical Goodwill Research: Insights, Issues, and Implications for Standard Setting and Future Research," European Accounting Review, Taylor & Francis Journals, vol. 32(2), pages 415-446, March.
    7. Penman, Stephen & Zhang, Xiao-Jun, 2020. "A theoretical analysis connecting conservative accounting to the cost of capital," Journal of Accounting and Economics, Elsevier, vol. 69(1).
    8. Derek K. Oler, 2008. "Does acquirer cash level predict post-acquisition returns?," Review of Accounting Studies, Springer, vol. 13(4), pages 479-511, December.
    9. d'Arcy, Anne & Tarca, Ann, 2018. "Reviewing IFRS Goodwill Accounting Research: Implementation Effects and Cross-Country Differences," The International Journal of Accounting, Elsevier, vol. 53(3), pages 203-226.
    10. Sara B. Moeller & Frederik P. Schlingemann & René M. Stulz, 2005. "Wealth Destruction on a Massive Scale? A Study of Acquiring‐Firm Returns in the Recent Merger Wave," Journal of Finance, American Finance Association, vol. 60(2), pages 757-782, April.
    11. Richard Barker & Stephen Penman & Thomas J. Linsmeier & Stephen Cooper, 2020. "Moving the Conceptual Framework Forward: Accounting for Uncertainty," Contemporary Accounting Research, John Wiley & Sons, vol. 37(1), pages 322-357, March.
    12. Maureen F. McNichols & Stephen R. Stubben, 2015. "The effect of target-firm accounting quality on valuation in acquisitions," Review of Accounting Studies, Springer, vol. 20(1), pages 110-140, March.
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