Accounting for Goodwill

Goodwill represents the value of a business's intangible factors — brand reputation, loyal customers, efficient staff, advantageous location — above the fair value of its identifiable net assets.

Internally generated goodwill: NOT recorded in books (prudence concept — uncertain, not verifiable).
Purchased goodwill: Recorded when a business is acquired for more than the fair value of its net assets.

• Formula: Purchased Goodwill = Purchase Consideration − Fair Value of Net Assets Acquired

Amortisation of goodwill:

• Under Indian GAAP (AS 26): Amortised over useful life (max 10 years)
• Under Ind AS (Ind AS 38): Goodwill arising from business combination is NOT amortised; tested for impairment annually (Ind AS 36)

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