Starbucks Annual Report Analysis: Goodwill

One of the fascinating accounting topics explored in Starbucks' annual report is the debate and accounting for goodwill. When a corporation acquires another enterprise and overpays for the new enterprise, it also generates goodwill for the company. The goodwill is the excess money paid above the market value of the purchased enterprise. The corporation then categorizes it as an intangible asset. On page 55 of the 2016 annual report, it describes the accounting treatment for goodwill in the notes to consolidated financial statements. This commodity is also tested for impairment and its valuation is adjusted accordingly by management. Starbucks recorded $1,719.6 and $1,575.4 in 2016 and 2015 respectively with no significant impairment. Notably, it could face a decline in value if the business can no longer receive the same benefits that it uses to receive as a result of the perceived advantages that give rise to goodwill such as the good image and sustainable client base.
Regarding Intermediate Accounting I, the discussion of goodwill by the company provides an insight into the real life treatment of the asset as part of the intangible assets. The fact that the enterprise follows the IFRS 3 with regards to recording and testing for impairment makes the process to appear practical. The information concerning this intangible asset is interesting given that other companies might easily fail to comply with the requirements of the applicable standards. For instance, a firm could end up generating internal goodwill and including it as part of the intangible assets which is against the financial reporting standards. Therefore, the interest in scrutinizing the same was to help discover the application of the principles guiding goodwill.