Caitriona,
this is a tough nut. What's happening is that the capitalised goodwill (an asset in the balance sheet) is being set-off against shareholders' equity (a liability in the balance sheet), in other words it's being moved around in the balance sheet instead of being depreciated (amortized, if you prefer) at the expense (to the detriment) of the profit & loss over a period of 4 to 15 years. This treatment will 'schonen' ('go easy on') the bottom-line figure of profit.
Hope this helps you to understand waht's going on.
Rod

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Note added at 2002-06-14 10:53:53 (GMT)
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what\'s going on, of course!

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Note added at 2002-06-14 15:07:12 (GMT)
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Clarification: the normal thing to do would be to capitalise the (derived) Geschäfts- oder Firmenwert on the Aktivseite of the balance sheet and then to write it off (i.e. post the account \'goodwill\' in credit and the account \'depreciation on goodwill\' in debit) over four (§ 255 Abs. 4 HGB) years or more. It\'s usual to take 15, since this is what is allowed by § 7 Abs. 1 sentence 3 EStG: \"Als betriebsgewöhnliche Nutzungsdauer des Geschäfts- oder firmenwerts eines Gewerbebetriebs gilt ein Zeitraum von 15 Jahren\".
This will of course depress profit, which is what most people are trying to do!
Not your principals, though, they have bunged the whole of the goodwill into the balance sheet on the Passivseite as a deduction from Eigenkapital! They are obviuosly not planning to write off goodwill, so as to make their profits look better.
Dürfen die das? Well, § 255 Abs. 4 Satz 1 HGB says \"Als Geschäfts- oder Firmenwert DARF (my capitals) der Unterschiedsbetrag angesetzt werden, um den die für die Übernahme eines Unternehmens bewirkte Gegenleistung den Wert der einzelnen Vermögensgegenstände des Unternehmens abzüglich der Schulden im Zeitpunkt der Übernahme übersteigt\" (about the best definition of goodwill in German law you\'ll get).
Und was heisst DARF? Well, the Wirtschaftsprüfer-Handbuch says in section E marginal number 339: \"Es handelt sich - entgegen der insoweit irreführenden Einordnung der Vorschift unter die Bewertungsvorschriften des Dritten Titels - um ein AKTIVIERUNGSWAHLRECHT (Fettdruck im Original). Also: die dürfen das.
Ok, they are NOT (sorry, folks) trying to depress profit, they are trying to improve it by not capitalising goodwill - which would force them to write it off to the detriment of profit. Klar geworden?
One interesting point is \'bis November\', which leaves open the possibility of their changing their minds in December . . . but let\'s not get too complicated!
Rod