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17. When a business engages in corporate social responsibility, it hopes to engender greater goodwill among its various stakeholders.
a. How are these expenditures accounted for?
b. If the resulting goodwill was capitalized under GAAP, do you believe that acts of corporate social responsibility would increase?
Expert Answer
Corporate Social responsibility- CSR is the corporate actions for environment wellbeing and goodness. CSR is more than business, it is the courtesy of company to the society and people living here. CSR does not provide any monetary profit but later on it increases Goodwill of the company. Companies do plantation to keep the society green, they work for poor women and children, they provide free education to poor children and shelter to the needy. These all come under CSR like “Reliance Foundation” in India who works for children’s education.
Importance of CSR– Companies do good for the society so that they can come in limelight and their brand value can increase. In this cut throat competition, companies want to do best and want to be successful, in this regard they come up with the CSR practices. Only consumers are not the God, other stakeholders are as important as customers. People’s way of thinking and responding about the company, increases its Goodwill.
(a)- Accounting for Goodwill under US GAAP-
Goodwill is an intangible asset, which cannot be seen and touched but can be felt. Goodwill is measured as “the excess of the cost of acquisition price over the fair value of acquired net assets. Negative goodwill will be any discount on acquisition (taken to the profit and loss statement). Goodwill is not amortized under GAAP.
Goodwill under IFRS- Goodwill is the difference between the cost of the acquisition over the acquirer’s interest in the net fair value.
If the resulting goodwill was capitalized under GAAP, do you believe that acts of corporate social responsibility would increase, Yes, because Goodwill is not amortized under GAAP.
