The paper examines whether the accounting concept of goodwill is necessary for national accounts. It discusses goodwill in business accounting and how it was incorporated into national accounting standards over time. The author argues that goodwill is not required for national accounts based on the relationship that goodwill equals negative net worth. They propose that national accounts can use market capitalization and net worth without the need to include goodwill as a separate concept.

1. Will the concept of Goodwill go well
with national accounting?
Itsuo Sakuma (Senshu University, Japan)
Paper prepared for the IARIW 33rd General Conference
Rotterdam, the Netherlands, August 24 – 30, 2014
Presented by Erich Oltmanns
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices

2. Assessment
Very interesting paper
Worth to read it
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices
30-08-14 slide 2

3. The framework
Goodwill
n Premium above the net value of individually identified and
valued assets and liabilities of an enterprise
n A concept of business accounting
n Incorporated into the SNA in its 1993 version
Central question: “Necessary for national accounts?”
The answer
n No!
n Goodwill = – Net worth
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices 30-08-14 slide 3

4. Goodwill = - Net worth
Net worth (NA) = Assets – Liabilities (BA) – Equity
Goodwill = Equity – (Assets – Liabilities (BA))
= (-1) (Assets – Liabilities (BA) – Equity)
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices
30-08-14 slide 4

5. Structure of the paper
Goodwill as a concept of business accounting
Goodwill in the SNA
Rationale of the business accounting concept of
goodwill in the national accounting framework
Conclusions and proposals
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices 30-08-14 slide 5

6. Goodwill in business accounting
Historical perspective
n Intangibles theory
n Superprofit theory
n Residuals theory
n Synergy theory
Today
n Legal definitions
n International Financial Reporting Standards
n European Union Regulation
n US / Canada: Generally Accepted Accounting Principles
n Synergy theory
n Also: badwill
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices 30-08-14 slide 6

7. Goodwill in the SNA
So far
n 1968 SNA: No concept of goodwill
n 1993 SNA: Introduction
2008 SNA
n Composite category: goodwill and marketing assets.
n “… is defined as the difference between the value paid for an
enterprise as a going concern and the sum of its assets less
the sum of its liabilities, each item of which has been
separately identified and valued.“ (para. 10.199)
n Compatible to synergy theory
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices 30-08-14 slide 7

8. Concept of goodwill: necessary for
national accounts?
Over time
n Purchased goodwill
n New synergies
n Internally generated goodwill?
Sale of purchased enterprise
Goodwill = - Net worth
Proposal to quit the concept of goodwill
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices 30-08-14 slide 8

9. Conclusions and proposals
Theory of synergy may be most persuasive.
Concept of goodwill not necessary for national accounts
Using market capitalisation and net worth sufficient
Relationship between net worth and Tobin’s Q
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices
30-08-14 slide 9

10. Comments/Hints to the author
Clear structure
Clear message
Historical context (of business concepts)
n Very useful
n Maybe overweighted in the paper
Additionally: Tobin’s Q
Meaning of Superprofit theory of Goodwill?
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices 30-08-14 slide 10

11. © Federal Statistical Office of Germany, National Accounts, Labour Market, Prices 30-08-14 slide 11

12. Read this paper!
Erich Oltmanns
Telephone: +49 611 752087
erich.oltmanns@destatis.de
www.destatis.de
© Federal Statistical Office of Germany, National Accounts, Labour Market, Prices