Many purchase business combinations involve the recognition of goodwill. Except to those who follow every bit of accounting standard update, talking about accounting for goodwill today is most likely uneasy (if not confusing,) even to an accounting veteran. Through this post, I am going to overview the accounting for goodwill, in purchase business combinations based on the most current rules.
Under the purchase method, when the legal form of combination is a merger or consolidation, the acquirer records all the acquired assets and assumed liabilities at their fair values. If the actual cost exceeds the fair values of the tangible and identifiable intangible net assets acquired, this excess is recorded as goodwill.
In most current accounting standard, as you might have very well known, goodwill is no longer subject to periodic amortization, but rather, is subject to periodic evaluation for impairment. But that is only a small part of what I call goodwill in the jungle. In this post, I am going to exclusively highlight goodwill in the business combination environment. Included in this post are: Identifiable and unidentifiable intangible assets, useful economic life of intangible assets and goodwill, residual value of goodwill, allocation to goodwill, goodwill impairment, measurement procedures for impairment, initial assessment of goodwill’s fair value, annual impairment testing, other impairment testing considerations, presentation of goodwill and of goodwill impairment.
