Kallus Corp. is an industry leader in the manufacture of toys. Each year, its de
ID: 2466656 • Letter: K
Question
Kallus Corp. is an industry leader in the manufacture of toys. Each year, its design staff comes up with new ideas that are a great success. As a result, Kallus's sales and profits consistently exceed those of other toy manufacturers. Over the past 10 years, Kallus has earned an average net profits of $189 million, compared to $122 million for the typical company in the toy industry.
Answer the following questions:
A. Does Kallus have goodwill? Explain.
B. Is goodwill an asset? Explain? (Does it meet the definition of an asset found in SFAS No. 6)
C. If you believe Kallus has goodwill, how would you go about measuring it? Explain.
D. Should Kallus Corp. report goodwill in the balance sheet? Why, or why not?
Explanation / Answer
A
Yes.
An intangible asset is that asset which gives a competitive edge to a business entity e.g Brand name or high reputation.
In this case, the company is earning more money than others company so it does have a goodwill.
B
SFAC 6 defines an asset as that which has 'probable future economic benefits obtained or controlled by a particular entity as a result of part transactions or events.
Since this company has gained this advantage due to past events hence it is an asset.
C
Goodwill calculation can be performed accurately at the time of selling of a company.It would be the amount over and above values for all the net assets
D
No,As it has not purchased the asset (Goodwill).It can't show goodwill.
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