Thursday, January 10, 2008

Accounting rules will hit profits

Companies will have to change the way acquisition costs are handled under new accounting rules – a move that will hit profits and could damp the urge for mergers.

Fees charged by investment bankers, lawyers and accountants are currently bundled into the overall cost of a takeover and go on the balance sheet as part of “goodwill” – the accounting catch-all term used to cover the difference between the price paid and the actual value of the assets.

Separating the fees will force companies to book a one-off expense for each deal, denting their net income for that period.

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