Andrew S. Pike, CFA, ASA, RV
Sebastiaan T. Mullens
March 9, 2016
A number of Dutch GAAP accounting changes took effect on January 1, 2016, some of which affect goodwill and definitions of value. This paper briefly discusses the updates to goodwill and definitions of value and assumes a practitioner’s understanding on basic definitions of value. Please do not hesitate to let us know if you would like further information.
The recently published 2015 edition of the Dutch GAAP accounting handbook “Richtlijnen voor de jaarverslaggeving voor grote en middelgrote rechtspersonen” includes some key changes affecting goodwill.
Transaction-related goodwill generated on or after January 1, 2016 must be capitalized and amortized. Goodwill could previously be recorded in three ways: a) write off through the profit and loss statement; b) write off directly against equity; or c) capitalize and subsequently amortize. Starting in January 2016, only one method is allowed – capitalize and amortize. This is one of the areas where Dutch GAAP deviates from IFRS, where goodwill should not be amortized, but rather tested at least annually for impairment.
Goodwill amortization period has also changed. Previously, goodwill could be amortized up to 5 years unless there was a reasonable basis to apply a longer period. As from January 2016, goodwill may be amortized up to 10 years unless there is a reasonable basis to apply a longer period, but not more than 20 years.
Definition of Value
‘Besluit actuele waarde’, the Dutch legislation regulating fair value for accounting purposes, includes a number of changes to definitions of value. Five definitions of value are covered by this legislation – marktwaarde (fair market value), opbrengstwaarde (maximum selling price), bedrijfswaarde (value in use), vervangingswaarde (replacement value) and actuele kostprijs (defined below). A definition of each standard of value according to Dutch law is as follows:
- Marktwaarde (fair market value): the amount for which an asset could be traded or a liability settled between well-informed independent parties who are able to transact.
- Opbrengstwaarde (maximum selling price): sometimes referred to as ‘value in exchange’ or ‘fair value less [costs of disposal / costs to sell]’ in other jurisdictions, the maximum amount for which an asset could be sold excluding related transaction costs.
- Bedrijfswaarde (value in use): the monetary value to a company of an asset or group of assets based on the future cash flows that such company could receive by carrying out its business activities.
- Vervangingswaarde (replacement value): the amount that would be required by a company to replace an asset that is used by the company in its business activities with another asset of the same economic characteristics.
- Actuele kostprijs: Either a) the present purchase price and additional costs of the asset, reduced by depreciation (depreciated replacement cost); or b) the costs to purchase the raw materials used for manufacturing the asset, reduced by depreciation (depreciated reproduction cost).
‘Replacement value’ has been replaced by ‘actuele kostprijs’. The new definition more explicitly allows for a choice between depreciated replacement cost and depreciated reproduction cost, and allows for indirect expenses and finance charges in depreciated reproduction cost.
‘Fair market value’ is no longer allowed for companies where at least 2 of the following conditions apply: 1) assets are less than or equal to €350k; 2) net revenues are less than or equal to €700k; 3) average number of employees over the year are less than 10. Other valuation approaches could be applicable to such companies depending on the purpose of value.
When tangible or intangible fixed assets are recorded at fair value, the lower of ‘actuele kostprijs’ and ‘value in use’ should be used, with one exception. If ‘maximum selling price’ is lower than ‘actuele kostprijs’ but higher than ‘value in use’, ‘maximum selling price’ should be applied.
‘Replacement value’ was previously required for assets held for sale. Definition of value has been removed from this legislation for assets held for sale. In an effort to ensure that assets held for sale are not valued too high, the legislation no longer prescribes a definition of value for assets held for sale.
If you would like more information about Dutch GAAP valuations, please contact Andrew Pike, managing director of AN Valuations at +31 70 221 0058 or apike[@]anvaluations.com.