Question

I want you to analyze the write-off of the $23 Billion in GOODWILL by General Electric (GE).....Is there really an ASSET called GOODWILL????....Should Goodwill be recorded as an EXPENSE????

Answer 1

Goodwill is actually an intangible asset that doesn't exist physically. It is the additional amount company pays for acquisition above net book value of assets. The goodwill is disclosed in asset side of balance sheet & not to be expensed off since it is paid above net assets cost for purpose being giving consideration for the accumulated reputation of business purchased.

Write-down by General Electric (GE) is a case of goodwill gone bad as per GE. According to them, it was a goodwill impairment charge that the company charged. The case details are: GE's power division was sinking fast. In 2015, it purchased the energy business of Alstom of France for $10.1bn. Accounting for purchased revealed that they have paid more than the book value of acquired business to get the deal done, which should ideally be treated as goodwill(Refer above explanation of goodwill) in the books. Now, GE claims, Alstom had a negative book value of $7.2bn, whereas GE paid $10.1bn for acquisition itself & recorded such difference together with $10.1bn as Goodwill in the balance sheet & hence on knowledge of this, GE considers it to be lot more paid than worth for goodwill & hence they written down $23bn in goodwill. Some well known analysts opinionated calling it the most unusual deal ever seen. Treatment by GE is rare.