The positive reputation of any company is a necessary component of the success of the company, which helps to protect the latter and increase the value of its shares and the market value in general. A business entity’s reputation affects its activities’ efficiency, attractiveness for customers, partners, and investors, and the demand for relevant goods and services offered by such a business entity. Goodwill is essentially an intangible asset, the value determined as the difference between the market price and the book value of the company’s assets (Kliestik et al., 2018). It includes its name, reputation, business relationships (including clientele), trademarks, and other firm property (Kliestik et al., 2018). Goodwill arises from using the best managerial qualities and a dominant position in the goods, services, and new technologies market.
For the reasons described above, the correct valuation of goodwill is often a difficult task. There are several methods for calculating goodwill. The proportional method takes into account only the goodwill of the controlling shareholder – it is defined as the difference between the amount of the investment and the amount of the net assets of the company multiplied by the percentage of ownership (Kliestik et al., 2018). The calculation of goodwill using the complete method involves comparing the fair value of a subsidiary to all of its net assets and not just the controlling shareholder’s portion (Kliestik et al., 2018). The assessment was correct if Candler’s controller correctly calculated using one of the methods described above and considered all the risks of goodwill impairment. Depreciation risks include, for example, a deterioration in the economic performance of a company or a decrease in the value of its shares.
Reference
Kliestik, T., Kovacova, M., Podhorska, I., & Kliestikova, J. (2018). Searching for key sources of goodwill creation as new global managerial challenge. Polish Journal of Management Studies, 17.