Please use this identifier to cite or link to this item: http://hdl.handle.net/1893/10839
Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: Trade-related valuations and the treatment of goodwill
Authors: Dunse, Neil A
Hutchison, Norman E
Goodacre, Alan
Contact Email: alan.goodacre@stir.ac.uk
Keywords: Assets valuation
Goodwill accounting
Real estate
Market value
Issue Date: 2004
Publisher: Emerald
Citation: Dunse NA, Hutchison NE & Goodacre A (2004) Trade-related valuations and the treatment of goodwill, Journal of Property Investment and Finance, 22 (3), pp. 236-258.
Abstract: Guidance Note 1 of the Red Book states that the valuation of an operational entity includes four components: the land and buildings; the trade fixtures and fittings; the trading potential, excluding personal goodwill; and the benefit of any transferable licenses and consents. Accounting changes in recent years have increasingly recognised the importance of intangible assets such as intellectual capital and goodwill. Similarly, recent tax changes demonstrate the government's acceptance of the importance of such items in achieving and maintaining business competitiveness. This paper has two key objectives: first, to analyse the application of the Red Book to trade-related valuations, paying particular attention to the treatment of goodwill and second, to critically evaluate the accounting treatment of goodwill and in particular the application of Financial Reporting Standard 10. In order to understand the workings of the market, the corporate hotel sector was used as a case study. The key findings of the research are that valuers expressed considerable unease with the apportioning of market value between tangible assets and goodwill, there was no consensus on how (or if) goodwill could be measured reliably. Second, that the valuation methods adopted are, to a degree, naïve. While explicit changes are made to the cash-flow projections, there is insufficient appreciation of the changing risk profile that might lead to an adjustment to the earnings multiplier. The accounting difficulties and inconsistencies concerning goodwill arise largely because of inadequate valuation methods. Recent tax changes also point to the need for a robust and defendable valuation methodology. Application of one such theoretically sound approach to valuing goodwill (the bridge model) is illustrated in this paper. While the research focused on the corporate hotel sector, the findings have wider implications for other sectors of the market where operational entities are valued with regard to their trading potential.
Type: Journal Article
URI: http://hdl.handle.net/1893/10839
DOI Link: http://dx.doi.org/10.1108/14635780410538168
Rights: The publisher does not allow this work to be made publicly available in this Repository. Please use the Request a Copy feature at the foot of the Repository record to request a copy directly from the author. You can only request a copy if you wish to use this work for your own research or private study.
Affiliation: University of Aberdeen
University of Aberdeen
Accounting and Finance

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